What are smart contracts: a brief guide

The idea of ​​smart contracts appeared back in 1994, when Nick Sabo proposed using distributed global code to store information about transactions. Today, they are considered to be a very promising technology that can greatly simplify and secure many areas of life. Let's look at how smart contracts are arranged and why they are needed.



A smart contract is a computer algorithm in a blockchain environment. It allows you to enter into and maintain transactions, as well as automatically fulfill their conditions.
The main "trick" of this technology is that it allows you to eliminate intermediaries from the transaction - the blockchain completely eliminates the possibility of fraud or breach of contract. For example, the widespread introduction of smart contracts in real estate transactions will lead to the fact that the role of government agencies will be minimized - they simply will not be necessary.

Content of smart contracts

Each smart contract is recorded on the blockchain and contains the following data:
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• electronic signature based on public and private keys;
• subject of the contract;
• tools for the execution of the transaction;
• terms of an agreement.

In order for the contract to have the opportunity to interact with the real world, so-called “oracles” are used - special programs that collect information from external sources and format it so that the data can be used by the blockchain application.

Varieties of smart contracts

Experts classify smart contracts by degree of automation. So, they can be:

• fully automated, without paper media;
• partially automated, with a copy on paper;
• partially automated, mainly on paper.

To date, the lion's share of all smart contracts belongs to the third type. This is due to the almost complete lack of regulation and a number of shortcomings that are still inherent in this technology.

Scope of application

The potential of smart contracts is very high - experts believe that soon they will be widely used in such areas as:

• finance;
• jurisprudence;
• elections and voting;
• logistics;
• accounting and auditing;
• Smart gadgets and transportation;
• personal identification;
• registration of property rights.

So far, smart contracts are used to create multi-signatures and implement ICO. There are cases of successful use of smart contracts in transactions with real estate and other valuable property, but they are sporadic and have not yet become widespread.

The benefits of smart contracts

The technology of "smart" contracts appeared on the basis of the idea that most transactions can be fully or partially automated. Thanks to the blockchain technology, such a contract will be much safer than the traditional one. By applying smart contracts, we can avoid violating the terms of the transaction, as well as their ambiguous interpretation.
Thus, this technology has a number of distinct advantages:

• lack of intermediaries;
• safety and immutability;
• automation;
• saving;
• accuracy.

Disadvantages of smart contracts

The main obstacle to the integration of smart contracts in everyday life is weak regulation. Given the lack of legal acts, the agreement on the blockchain will not be able to interact with the courts and other government agencies. This discourages potential users and causes distrust of the new technology.

Another problem is the presence of critical errors in the code, as well as the lack of the necessary blockchain infrastructure. In addition, the very idea of ​​smart contracts is far from being suitable for all purposes - for example, banks will not transmit confidential information through open distributed registries.

Fortunately, the world does not stand still - thousands of developers are constantly working to solve these problems. Looking at the development dynamics of the blockchain industry, we can safely assume that very soon we will move from traditional contracts to “smart” electronic contracts.