Smart Contracts in Blockchain Technology

A smart contract, sometimes referred to as a cryptocurrency contract, is a computer program that controls the direct and automatic transfer and exchange of digital assets between parties under specific circumstances. Similar to a traditional contract, the smart contract also has automated enforcement. A certain sort of programming known as “smart contracts” executes precisely as intended by its designers (coded, designed). Ordinary contracts can also be enforced by code in the case of smart contracts.

What is the contract?

Let’s review the definition of the term “contract” before diving into smart contracts in depth. A contract is an agreement between two or more parties that is legally enforceable.

Human validation is required for the execution of a typical contract to review the terms and conditions and determine the following actions in accordance with the written agreement. As a result, a standard contract might look like this –

• Time-consuming – Checking the contract, validating and approving it, permitting the following actions, and so on.

• Resource consuming – The implementation of a traditional contract may necessitate human intervention.

• Costly – It may entail the involvement of a third party, this is especially true during a legal battle.

The more complicated a contract is, the more control it requires and the higher the danger of a conflict. For instance, this could entail many execution steps that permit specified activities, or grant specific privileges.

The basic differences between standard contracts and smart contracts

How does a smart contract work?

Is a smart contract simply a digital contract with blockchain security code embedded in it? A smart contract is made up of rights and information encoded in code and requires a certain series of actions to be taken for the smart contract’s requirements to be satisfied. Time constraints may also exist, which lead to contract deadlines.

Because it is built on the blockchain, this contract is decentralised, transparent, immutable, and cost-effective. The blockchain contains the address of every smart contract. If the contract has been distributed on the network, it may be shared using its address.

Smart contracts are based on a straightforward concept. They work based on basic logic, such as IF-THEN.

• IF you deliver me object A, THEN I will send you the sum (in cryptocurrency).

• IF you send a particular amount of digital assets (cryptocurrency, such as ether or bitcoin), THEN the A item will be transferred to you.

• IF I complete the task, THEN the digital assets of the contract will be handed to me.

Note – We may use a WHEN restriction to incorporate the time component into smart contracts. As can be seen, smart contracts help to define the requirements that must be satisfied in order for the contract agreement’s responsibilities to be fulfilled. In a smart contract, you are free to include as many IF or THEN clauses as you like.

A simple example of a smart contract

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  contract Puzzle {
    address public owner_address;
    bool public is_locked;
    uint public reward_val;
    bytes32 public diff;
    bytes public solution;

    function Puzzle() { //constructor
      owner_address = message.sender_address;
      reward_val = message.value;
      is_locked = false;
      diff = bytes32(11111); //pre-defined difficulty
    }

    function () { //main code, runs at every invocation
      if (message.sender_address == owner_address) {
        // update reward
        if (is_locked) throw;
        owner_address.send(reward_val);
        reward = message.value;
      } else if (message.data.length > 0) { // submit a solution
        if (is_locked) throw;
        if (sha256(message.data) < diff) {
          message.sender_address.send(reward_val); // send reward
          solution = message.data;
          is_locked = true;
        }
      }
    }
  }

A simple contract that rewards the user who’s able to solve the computational puzzle successfully.

Features

• Trust - The smart contract cannot be lost since it is part of the blockchain.

• Accuracy - Smart contracts are only as precise as the programmer who wrote them for execution.

• Speed - Smart contracts leverage computer code to automate operations, minimizing the amount of time it takes to go through all of the human interaction procedures. Because everything is programmed, the time it takes for the smart contract code to execute is the same as the time it takes for all of the tasks to be completed.

• Backup - The blockchain is the most dependable backup method since each node maintains a copy of the shared ledger.

• Autonomy - A third component is not necessary. The contract is drawn up by you and distributed to the parties. Since there are no middlemen, there is less intimidation and the trade partners have total control. Additionally, the smart contract is maintained and executed by every node on the network, removing any control from a single entity.

• Security - Cryptography can ensure the safety of digital assets. Even if the encryption is cracked, the attacker will still need to modify every block that comes after the modified one. Please be aware that this is a highly difficult and time-consuming procedure that is nearly impossible for a small or medium-sized firm to complete.

• Savings - Smart contracts reduce costs by removing the need for middlemen in the transaction. In addition, the amount of money spent on paperwork is little to none.