đź‘ľ Game Master
6/21/2022, 2:49:27 PM
Smart Contract
What is a Smart Contract?
As its name “smart” indicates, a smart contract is a self-executing contract. The agreements between buyers and sellers are directly programmed into codes. The code is in the form of:
- If A happens, then B happens.
The smart contract is usually applied on blockchain and shares the characteristics of transparency and irreversibility.
Through smart contracts, traders can decide their own rules, just like regular contracts that we see every day. The special function of a smart contract is that it will automatically enforce traders to execute the predetermined deals.
Image source: https://www.cysae.com/wp-content/uploads/2019/04/2018.03.08-Smart-Contract-Legal-02-1.png
Why Is It Important?
Just like other applications of decentralization, the smart contract marks a milestone in the trust system in finance. Trust had always been a problem in the finance world, and many of the worst financial crises are led by the collapse of the trust system. Here, by using a smart contract, technology takes over the role and makes sure the "game of trading" is 100% transparent and secure. The principle is simple since humans cannot ensure a 100% justice system, we invented machines and technologies to help supervise the process and increase its reliability.
Image source: https://pirimidtech.com/wp-content/uploads/2022/02/smart-contract-1.png
The followings points summarize some key features and importance of the smart contract:
- Irreversibility: Once a smart contract is created, it cannot be changed.
- Independence and Decentralized: No third party is involved during the process of agreeing on a contract.
- Transparency and Security: The smart contracts are encrypted and shared with everyone on the network. Therefore, it is hard for a contract to be hacked or tampered with for personal interest.
How Does Smart Contract Work?
The following graph summarizes the process of executing a smart contract.
