Every day presents a fresh opportunity to uncover a new application for blockchain technology. After successfully forming the backbone for a revolutionary cryptocurrency, the blockchain is bringing forth strategic evolutions across industries including logistics, web security, and even trade finance. However, nowhere is this advance more evident than its growing function as an innovative payment solution. One of the key pillars driving this rapid adoption is the embrace of smart contracts.
Simply stated, smart contracts are a form of automated contracts that use pre-defined rules to facilitate the exchange of nearly any good or service. The overarching principle is to increase the transparency of the transaction while reducing fees and allaying the potential for conflict over nonperformance. However, unlike traditional contracts, these contracts have no room for interpretation because all terms are predetermined and automatically enforced by the contract itself.
A simple analogy for understanding the purpose would be pizza delivery. In this example, a pizzeria promises 30-minute delivery for a pie or money back guaranteed. The pizzeria would then create a smart contract with a customer ordering a pie. The customer could put the funds in escrow, and if the pizza is delivered within 30 minutes, the funds are released from escrow to the pizzeria. If the pizzeria fails to deliver on time, the money held in escrow is returned to the customer. While overgeneralized, this example readily illustrates how smart contracts can be applied across nearly any activity that requires some sort of contract to establish trust and security between parties.
Bridging the Ingenuity of Blockchain With Modern Contracts
Smart contracts are simply that – smart. They are very carefully designed to carry out specially designed functions and tasks without the intervention of either of the parties which could result in the breach of said contract. In the event of a breach, the contract is optimized to ensure that the other party is not damaged by the violation.