Smart Contracts

A Smart Contract is a combination of a set of instructions (the contract functions) and data (the contract state) that runs on a Blockchain network. A Smart Contract is designed to automatically execute actions triggered by an event as programmed into the Smart Contract according to pre-defined terms of a physical contract or an agreement between two or more participants in a Blockchain network.

The objectives of Smart Contracts are to reduce the need for trusted intermediaries, reduce disputes and resolution costs, and limit losses due to intentionally malicious or accidental errors. Since Blockchain solutions have similar objectives of eliminating the need for intermediaries, increasing transparency, reducing disputes, and preventing fraud, Smart Contracts work perfectly in tandem.

All of the benefits of a Blockchain solution also apply to Smart Contracts. There is security since the contracts are encrypted and cannot be tampered with, consensus since the terms of the contract can only be changed by mutual agreement by all participants on the network, and transparency since all participants have immediate visibility on the execution of actions.

Although the name implies it, Smart Contracts are not contracts in the true sense of the word. They are not agreements that should be fulfilled or complied with, but just programs that are automatically executed based on defined events and conditions in a physical contract, which are traditionally executed manually.