A smart contract is a computer program which helps in the digital execution of a contract on the blockchain network. This contract is automatically executed when its pre-defined conditions are met.
How it works
- An option contract between parties is written as code into the blockchain. The identities of the individuals involved in the smart contract will not be known, but the contract is entered into the public ledger of the blockchain.
- If the conditions of the contract are triggered, for example like a price to be hit, etc, the contract is automatically executed based on the code written for the contract to be executed on the blockchain.
- The regulators of the smart contract can use the blockchain technology to understand and monitor the ongoing trends of the market based on the blockchain technology without revealing their identities as to gain an approximate idea as when their contract would be executed.
Pros of Smart Contract
- Autonomy: The user need not depend on third parties for the execution of their contracts.
- Trust: There is no way you can lose your documents.
- Backup: Even if your documents are lost, you can obtain duplicate documents from your friends on the blockchain.
- Safety: As smart contracts are executed with the help of cryptography, they are executed safely.
- Speed: You can have your contracts executed much faster when compared to the traditional process.
- Savings: Since the interference of a third party is not needed, you need not pay them their commission for helping you executing the contract and hence you can save money.
- Accuracy: Since this is the automated form for contract execution, all manual errors can be avoided which means that the contracts are much accurate.
Cons of Smart Contract
- The code which runs the smart contract can get bugs in it.
- It is not easy for governments to regulate smart contracts.