Smart contracts are programs recorded on a blockchain that execute when certain criteria are fulfilled. They are usually used to automate the execution of an agreement so that all parties can be assured of the result without the participation of any intermediary. Applications include Dispute resolution, Supply chain, and Trade finance.
How do they work?
Smart contracts operate on a blockchain by executing basic “if..then..” clauses written in code. When specified criteria gets fulfilled, the respective activities are performed. These criteria may include transferring money to the relevant parties, registering a vehicle, delivering notifications, or issuing a ticket. When the transaction is completed, the blockchain is updated.
• Speed, efficiency, and accuracy
Because smart contracts are automated, and there is no paperwork to complete, no time is wasted correcting mistakes that may occur when filling out forms manually.
Blockchain transaction records are encrypted, making it difficult to hack. Also, since each record on a distributed ledger is linked to the preceding and subsequent entries, hackers would have to modify the whole chain to alter a single entry.
• Transparency and Savings
Since there is no intermediary involved, the associated fee gets saved. No involvement of third party creates trust in the system.