Smart Contracts: Meaning and Real-World Examples

Smart Contracts: Meaning and Real-World Examples

Whether we recognize it, contracts are one of the most significant parts of our daily lives. When we buy something, we enter a contract that agrees that the thing I am getting should have the value of the money. The concept of a contract has been evolving since the beginning of time.

However, the advent of the blockchain has expanded our knowledge of the contract. Technology is pushing the bounds of what a contract is, and now, smart contracts are as much a part of our lexicography as the word contract itself.

The concept of a smart contract has become such a buzzword that many are confused about the idea. Also, the question of how it is different from the present from a typical contract is another grey area.

This article explains smart contracts and gives real-life examples of some black contracts applications.

What is a Smart Contract?

Smart Contracts are part of some blockchain technology that is trustless, autonomous, and transparent. We may refer to it as a self-executing agreement between two parties without the need for an intermediary. Its use cases are mostly in blockchain geared towards application technology like Ethereum and Solana.


The main point of a smart contract is that it is self-executing, which removes the need for an authority figure to execute the contract. They are written in blockchain codes and guarantee both parties that whatever they are getting into is genuine.

A smart contract is different from other forms of contract because it does not need any external authority to guarantee the contract. If two people enter a contract in real life, there is a need for an authority figure that will enforce the terms of the agreement. This is what smart contracts are doing away with.

The notion of a smart contract was suggested by Nick Szabo, a computer scientist, lawyer, and cryptographer. He proposed a set of computer protocols that will in and of itself make sure that parties carry out what he called a ‘set of promises.’ However, the publication of the Ethereum whitepaper and the subsequent launch of the blockchain fast-pedaled the development of the idea into a mainstream concept.


However, one needs to understand that these days, people use the concept of smart contracts beyond the parameters of the digital obligations or, as Szabo put it, promises to include general computation that takes place on a distributed ledger or a blockchain.

The above separates the concept of a smart contract as having no obligatory legal burden on the parties involved, unlike other pieces of contracts that are bound by law.

 

How do Smart Contracts Work?