Advantages and disadvantages of using smart contracts – How to create a smart contract?
Of course, these are not all advantages and disadvantages of smart contracts.
A classic contract is an oral or written agreement with a set of conditions. In the modern world, the fulfillment of contract conditions is guaranteed by the state. If one of the parties does not comply with the terms of the agreement, the court will determine the offenders and oblige them to bear responsibility. Such contracts are constantly found in everyday life: when renting an apartment, insuring a car or finding employment.
There are difficulties with classic smart contracts development. The specialist must compile the text of the document, otherwise, there may be gaps and inaccuracies in the terms of the agreement. Lawyers like using professional vocabulary that is hard for an ordinary person to understand. Another important nuance is the presence of a judge who resolves disputes between the parties to the agreement. Moreover, the trial itself requires time and money. Such an agreement format remained the best until a smart contract appeared.
What Is a Smart Contract and Why Should I Use It?
With the transition to digital methods of communication, storage, and processing of information, a foundation has emerged for a new form of contracts. It is the demand of modern society and new approaches. Almost everybody has heard such a notion as a smart contract. But what actually it means? How do smart contracts work? What are the benefits of smart contracts? Let’s find out everything about it.
What is a Smart Contract
This concept was developed by Nick Sabo in 1996. So, exactly he was the first who smart contracts explained. According to Sabo, a smart contract is a set of numerically promises, including protocols on which the parties fulfill their promises. An original smart contract example from Nick Sabo’s work is a vending machine.
The person lowers a coin into the machine, and then it provides him/her with a drink or a chocolate bar. This interaction is a transaction that involves the purchase of goods for a fixed amount. The difference between this situation and the classic contract is that the machine automatically fulfills the conditions of the transaction: if payment has passed, the mechanism issues the goods.
The real practical usage of smart contracts was found with the advent of blockchain technology. Do you know what is a smart contract in blockchain? Well, blockchain-based decentralized systems are environments in which the execution of a smart contract is independent of a third party, and its code cannot be arbitrarily changed. Outside such an environment, a smart contract will simply be a software code.
How to Make a Smart Contract
Do you want to find out how to make a smart contract? First of all, it is necessary to know the programming language. Creating smart contracts entry-level is possible without deep knowledge, but more complex contracts are better to entrust professional developers. They definitely know how to create a smart contract. Next, you need to select a blockchain platform, which will be a contract.
Currently, Ethereum smart contracts, where the Solidity language operates, are the most popular. For editing and drafting the contract Remix is used. Already written code is necessary to test and remove bugs from cryptocurrency exchanges. In ordinary contracts, the logic is as follows – if you put money, you get the prescribed and vice versa.
However, for a person who is far from programming, independent implementation of smart contracts on the blockchain will not be possible. For this purpose, a specialized Ethereum platform was created. It solves the problem of how to build a smart contract, being new to the industry. The program allows simplifying the creation of smart contracts for those who haven’t required knowledge of blockchain and smart contracts.
What is an Ethereum Contract
Ethereum smart contract is a condition of a transaction, recorded using a code that is required to be executed by the recipient and seller of any goods or currency. In essence, the smart contract serves as an intermediary between the two parties. Let’s analyze a small transaction using the smart contract Ethereum: two users decided to make cryptocurrency exchanges using this technology.
One of them sends funds to the program, where they are stored under reliable protection. Now no one can access them. The second user must fulfill own conditions: transfer a certain amount to the same program. As soon as this condition is met, traders receive funds. If one of the participants did not fulfill the agreement, the money is returned back to their owners.
As soon as the transaction was recorded, all data about it is stored on a blockchain. And no one can delete or correct this information – tens of thousands of copies are on computers of different users around the world. One of the benefits of smart contracts for Ethereum is complete automatism. The participation of strangers is generally not required. This means that users can save a lot of money on commissions, which would have to be paid to intermediaries.
How do Smart Contracts Work
The development of smart contracts is connected with blockchain technology. Actually, it takes place on the blockchain platform. Its content is placed in the program block, from which entry and exit points are made, allowing the smart contract to work with information outside the blockchain, including performing some actions.
For the contract to work, it is necessary the parties apply electronic signature technologies that are used when signing transactions in the blockchain applications. In order for the smart contract to work efficiently, exactly specified conditions for the execution of the contract are necessary, otherwise, it will be impossible to automate the process. Also, smart contracts receive information from outside blockchain platform through the use of Oracle programs that mediate with external databases and are entered into the blockchain technology. The basic principle of how do smart contracts work is the accuracy of the execution of the prescribed conditions, as well as full automation of this process. But of course, the best practices show that smart contract ideas have both advantages and disadvantages.
Among the advantages are:
- Reliability and immutability provided by the decentralized data storage system in the blockchain technology;
- Transparency of actions in smart contracts on blockchain in the system, along with the confidentiality of the parties to the contract;
- Automation of smart contracts work;
- Cost reduction due to exclusion from the chain of intermediaries;
- High speed of execution thanks to the use of mathematical algorithms in blockchain applications instead of bureaucratic mechanisms.
Blockchain and smart contracts also have disadvantages:
- Weak legal regulation of smart contracts work;
- The necessity to address the issue of transaction processing speed and scalability in blockchain technology;
- Inability to adjust smart contracts work;
- High dependence on programmers and exposure to bugs.
Of course, these are not all advantages and disadvantages of smart contracts. But if remember it is still developed and improved, smart contracts work have all chances to become a great replacement of standard ones. Finally, as the best practices show, it is better to apply to blockchain development companies if you have not required skills and knowledge.
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