Smart Contract as a New Concept in the Global Economy

News/Global News/Smart Contract as a New Concept in the Global Economy
27.04.2018 16:45

All great inventions, except for a really good idea and proper implementation, should appear at the right time and place. A lot of revolutionary solutions had been found long before they were recognized as such by society. In due time, such a situation occurred with mobile phones, social networks, electronic payment cards and crypto currencies, and the same is happening now to smart contracts.

A smart contract is a computer algorithm designed to conclude and maintain commercial contracts in the Blockchain technology. Simply put, it is a virtual analogue of notary officers and all legal intermediaries.

Nick Szabo was the first to offer a preliminary model of smart contracts. Back in 1996, the American computer scientist and cryptographer proposed to use computer algorithms as smart contacts. But, there was no appropriate technology to implement his idea. Later, the Blockchain system became such a technology and enabled realization of the aforementioned idea.

The operating principle of smart contracts is quite simple.

The parties set terms and conditions of a transaction based on which, Blockchain algorithms draw up a smart contract. The contact is stored in a decentralized environment and encrypted by means of cryptography, and only the parties to an agreement know the nuances of it. As soon as all the stipulated terms and conditions are fulfilled — the transaction is carried out automatically. Therefore, the basic principle of a smart contract consists in complete automation and reliability of contractual relations between people.

The Ethereum project was the first to use smart contracts. Its developers proposed the model of a decentralized platform using which anybody can carry out almost any transaction. Each of the implementation stages of a smart contact must be expressed as a mathematical problem, which solution will lead to a logical apogee — execution of a transaction.

Smart contracts can be created by two ways: you can use ready-made templates provided by the platform or you can create your own template by writing a program code for it. If the first way does not require you to do anything, a person without special skills and knowledge in programming may face technical difficulties in the second one. In such a case, you will have to seek the assistance of programmers you know or you can follow the first way. But, the experts in the field of development and implementation of smart contracts state that such inconveniences are temporary, and in the nearest future, system algorithms will be able to convert correctly any terms and conditions.

A clear example of the use of smart contracts in real life is a relatively recent story of a resident of Kiev who, with the help of the smart contract, purchased immovable property from the other resident of Ukraine who was at that time in New York.

In conclusion, we would like to refer to the statement of an authoritative magazine “The Economist”, which in one of its publications mentioned the use of smart contracts as the most important application currently implemented by means of the Blockchain technology.

Time will tell who is right, but the one thing is clear: to neglect such a technology in the nearest future will become an inadmissible luxury.