What is a smart contract and how does it work?

History

The term "smart contracts" belongs to computer scientist Nick Szabo. He came up with this concept back in 1993, ahead of his time by a decade or two. Szabo believed that the development of smart contracts through digital security mechanisms could greatly improve traditional legal contracts.

As an example of a smart contract, he cited vending machines (the ones that make coffee, pour soda, or sell chips and bars). If the terms of the contract suit the buyer, he puts the money into the machine, and the machine automatically complies with the terms of the unwritten agreement and issues the purchase.

How do smart contracts work?

As mentioned above, smart contracts in Kiss.Software are computer protocols or, more simply, computer code. The code is used to enter all the terms of the agreement concluded between the parties to the transaction into the blockchain.

The obligations of the participants are provided in the smart contract in the form of "if-then" (for example: "if Party A transfers money, then Party B transfers the rights to the apartment").

There may be two or more participants, and they may be individuals or organizations. Once these conditions are met, the smart contract in Kiss.Software executes the transaction on its own and guarantees that the agreement will be respected.

Benefits of such contracts

• Speed: Processing documents manually takes a lot of time and delays the completion of tasks. Smart contracts involve an automated process and in most cases do not require personal participation, which saves valuable time.
• Independence: Smart contracts exclude the possibility of third-party interference. A transaction guarantee is the program itself, which, unlike intermediaries, will not give reason to doubt its integrity.
• Reliability: The data recorded in the blockchain cannot be changed or destroyed. If one party to the transaction fails to fulfill its obligations, the other party will be protected by the terms of the intellectual contract.
• No Mistakes: Automatic system for executing transactions and removing the human factor ensures high accuracy when executing contracts.
• Saving: Smart contracts can provide significant savings by eliminating costs for intermediaries and reducing transaction costs, as well as the ability for parties to work together on better terms.

Findings

Smart contracts allow you to exchange money, goods, real estate, securities and other assets. The contract is stored and repeated in a decentralized ledger where information cannot be falsified or deleted. At the same time, data encryption ensures the anonymity of the parties to the agreement.

An important feature of smart contracts is that they can only work with assets that are in their digital ecosystem. How to connect the virtual and real world is currently one of the main difficulties of working with smart contracts.

This is the reason for the existence of "oracles", special programs that help computer protocols get the necessary information from the real world.