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Smart contract is a term describing the ability of a computer system to automatically create conditions and execute agreements using Blockchain technology. This idea was born by a suggestion of Nick Szabo.
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According to Nick Szabo: “Smart contracts are the fourth industrial revolution”.
The basic idea of smart contracts includes many types of contracts such as obligations, security, disclosure, specification of ownership, … They can be implemented on both hardware and software. An example from everyday life: vending machines are the ancestor of smart contracts.
In fact, it is not a literal “contract” but a special set of protocols whose goal is to contribute, validate, or conduct the contract negotiation and execution process. The execution of the contract terms is fully automated, meaning the human element is excluded: all operations are performed from pre-installed programs.
Blockchain is a great technology for smart contracts for the following reasons:
- Exclude a third party who is the guarantor of the terms and conditions of performance from the contract process.
- All information is transparent.
- Exclude fake contracts.
When you rent a car, the owner of the car will be the holder of the smart contract and you will be given the key with the password sequence. During the validity of the contract, the owner cannot get the car back because he does not have the key code. If you do not pay when it is due, the smart contract will automatically transfer the control of the key to the owner by locking the password that you own. At your final payment, your key passcode will automatically deactivate forever.
This is a contract that actually took place in 2016 with the help of blockchain. An oil supply contract was signed between an Israeli Ornua supplier and a buyer from the Seychelles.
Goods are packed in containers with special geosensors installed. Right after the ship arrived, the bank automatically transferred money to the supplier via credit card because the smart contract received sensor data about the location of the goods.
first . The benefits from smart contracts:
Smart contracts have some undeniable benefits thanks to blockchain technology:
- Self-sufficient: Smart contracts do not need notarization by attorneys, notaries or any other third parties. Therefore, it completely eliminates fraud or manipulation by these individuals.
- Reduce costs: Most of the stages are automated and almost completely eliminate the intermediaries.
- Speed: Anyone with experience handling a contract is aware that it is an extremely time consuming process. But processing a contract on the blockchain only takes a few minutes or even seconds.
- Security and accuracy of information: Smart contracts are encrypted and distributed to nodes. This ensures it will not be lost or modified without your permission.
2 . Limitations of smart contracts:
Unfortunately, there are some people who are skeptical and discouraging the idea of using smart contracts for the following reasons:
- No program can foresee all contract-related scenarios and collect a lot of input data. However, you can overcome this problem by using the help of tech giants like Microsoft, Apple, Linux or other reputable companies to solve this problem. At the same time, you can simplify the procedure by creating some new contract templates.
- Legal status is not clear: Currently, smart contracts are not yet managed by any government. Therefore, it is potentially contradictory if the management institutions decide to build a legal framework for this relatively new form of smart contracts.
- Human factor: Since the whole piece of code is written by humans and they can still make mistakes. If the smart contract is uploaded to the Blockchain, programmers will not be able to change it. A famous example of the human factor is the DAO event. The development team’s programming error has been discovered and exploited by a number of hackers, thereby robbing users of up to $ 60 million in capital.
Despite the above limitations, smart contracts have the potential to develop and put into practice. They will be used even more because developers of blockchain projects can provide simple and convenient tools to create sample contracts.
Smart contracts are available on Bitcoin, but the underlying structure of the coin limits the scope of its functionality. Hence, its “contract” is constructed relatively easily.
Another example, Credits is the first independent blockchain platform. Perhaps the biggest innovation that underpins Credits bring completely new contracts. Not everyone knows that the capabilities of the Ethereum network (which pioneered the development of smart contracts) are limited and there is no way to do everything users want. For example, you can’t make regular debit payments or set a specific billing date.
In the above scenario, you must send commands from the third party system to perform such operations or activities. Platform developers Credits ensure that their system is truly complete and self-contained, capable of performing all of these operations.
A full API allows programmers to create applications based on adaptive platform’s Credits. Users can access libraries and modules. These software features can be tailored to facilitate your specific tasks, whether you’re in business or managing anything on the Internet.
The addition of a smart contract system has brought a number of advantages to the platform Credits as:
- Blockchain is a register.
- High transaction speed – from 0.01 to 3 seconds: this is the fastest on all new platforms.
- Transaction volume reached 1 million transactions per second, compared with Bitcoin at only 7 transactions per second and Ethereum at 25 transactions per second.
- Low transaction costs.
In addition to these mentioned events, Credits platform and its smart contracts can be used to implement the following projects and scenarios:
- Insurance program.
- Commercial transactions.
- Instant payment.
- Public and independent contracts.
- Provide payments.
- Real owner tracking through chain of transactions.
- Number recognition system.
Credits Use its own currency, Credits coin (CS), to pay and perform smart contracts. This platform does not offer virtual currency mining.
Through the above information, it shows that a blockchain platform combined with smart contract brings all the benefits of the classic blockchain, but is more flexible and user-friendly.
If smart contracts continue to spread around the world, it will have a positive impact not only on transaction security, but also opening up new perspectives for many other areas of the economy.
Compiled by CHK.com
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