A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code. It is used on blockchain networks to facilitate, verify, and enforce the negotiation or performance of a contract. They can be created by anyone with the necessary programming skills. They work by automatically executing the terms of the contract when certain conditions are met. Lawyers may be involved in the drafting of the terms of the contract, but the actual implementation is done by programmers. Smart contracts are enforced by the network of computers on the blockchain and do not require a third-party intermediary. They are typically signed using digital signatures.
Once a smart contract is deployed on a blockchain network, it is stored on multiple computers, called “nodes,” that make up the network. These nodes work together to validate transactions and ensure that the contract’s terms are being followed. When a user initiates an action that triggers the contract, such as sending funds to a specific address, the nodes on the network validate that the action is valid and the funds are transferred.
Smart contracts are often used in decentralized finance (DeFi) applications, such as lending, borrowing, and trading platforms, to automate the process of managing financial transactions and agreements. They can also be used in supply chain management, voting systems, and other industries that require secure and transparent record-keeping.
In summary, Smart contracts are digital agreements that are self-executing, stored on blockchain networks, and can be used in various application such as finance, supply chain, voting systems and more. It’s important to note that lawyers may be involved in drafting the terms of the contract, but the actual implementation is done by programmers. It’s enforced by the network of computers on the blockchain and do not require a third-party intermediary.
This page was last updated on January 12, 2023.