A Smart Contract (or crypto contract) is a computer software that manages the transfer of digital assets between a peer-to-peer network of involved parties directly and automatically under specific conditions. Similar to a typical contract, a smart contract operates with automatic contract enforcement. Just like a traditional contract is enforceable by law, smart contracts are enforceable by code - they are computer programs that execute exactly as their creators have coded or programmed them to.
Without the need for a centralized authority, a legal system, or an external enforcement mechanism, smart contracts enable trusted transactions and agreements to be made between dispersed, anonymous parties. When smart contracts are deployed on blockchains, transactions become traceable, transparent, and irreversible.
Smart contracts are essentially programs stored on a blockchain that run when predetermined conditions are met. They are often used to automate the execution of an agreement so that all participants can be certain of the conclusion immediately, without the involvement of an intermediary or additional delay. They can also automate a workflow by automatically executing the next action when certain conditions are met.
Features of Smart Contracts
A smart contract has the following features:
- Distributed: everyone on the network is guaranteed to have a copy of all the smart contract conditions, and none of the parties can change them. All nodes connected to the network duplicate and distribute a smart contract.
- Deterministic: smart contracts can only perform their intended functions when the required conditions are met. The end result will be the same regardless of who executes the smart contract.
- Immutable: once deployed, a smart contract cannot be changed.
- Autonomy: no third parties are involved. As there are no intermediaries, this means that once conditions are met, the contract is executed immediately. Furthermore, the smart contract is maintained and executed by all nodes on the network, removing any control from any particular party.
- Customizable: smart contracts have the potential to be modified or customized before being deployed.
- Trust and Transparency: smart contracts are always stored on a public distributed blockchain ledger, the code is visible to everyone, regardless of whether they are participants in the smart contract. There is no requirement to question whether information has been manipulated for personal gain because there is no third party involved and encrypted records of transactions are transmitted between parties.
- Security: blockchain transaction records are encrypted, making them extremely difficult to hack. Furthermore, because each record on a distributed ledger is connected to the preceding and subsequent entries, hackers would have to change the entire chain to change a single record.
- Self-verifying: They are self-verifying due to automated possibilities.
- Self-enforcing: These are self-enforcing when the conditions and rules are met at all stages.
Many organizations can benefit from smart contracts in active blockchain solutions. These range from retail-supplier relationships that quickly avoid disputes with vendors, making international trade more efficient, and within the medical industry, reducing issues in the transport of medications by increasing supply chain transparency.
Organizations of all sizes can easily implement powerful, secure, and resilient blockchain applications, safeguarded by HSMs from Utimaco.
