Many platforms and applications that use blockchain or distributed ledger technology must include smart contracts in order to operate well. In this article, VNEXT Global, a blockchain development company in Vietnam, will provide an overview of smart contracts, including definition, benefits and drawbacks in reality.
An Overview Of Smart Contracts Suggested By VNEXT Global
What are smart contracts?
Smart contracts using blockchain-based algorithms only execute when certain criteria are met. They are often used to automate the implementation of an agreement. Therefore, all parties can make sure of the articles in the contract, without the need for an intermediary or additional delay. Smart contracts automate a workflow allowing the next steps to be executed only when circumstances are met.
In short, smart contracts, or digital contracts, are executed automatically when certain articles are satisfied, and are maintained on a blockchain.
How smart contracts work
Simple "if/when...then" phrases that are typed into code and placed on a blockchain are how smart contracts operate. When predefined circumstances have been verified to have been met, a network of computers will carry out the actions. These can entail paying out money to the right people, registering a car, sending out notices, or writing a ticket. When the transaction is finished, the blockchain is then updated. As a result, the transaction cannot be modified, and only parties to whom permission has been granted can view the outcome.
As many conditions as are required to reassure the participants that the activity will be successfully accomplished can be included in a smart contract. Participants must agree on the "if/when...then" rules that govern those transactions, consider any potential exceptions, and design a framework for resolving disputes in order to set the terms. Participants must also decide how transactions and their data are represented on the blockchain.
A developer can then construct the smart contract. Currently, more and more businesses using blockchain for business are using templates, web interfaces, and other online tools to make working with smart contracts become easier.
Benefits of smart contracts
Speed, effectiveness, and precision
The smart contracts can be carried out immediately if a condition is satisfied. Smart contracts are digital and automated, so there is no paperwork to complete or time spent fixing mistakes that frequently occur when documents are filled out manually.
Integrity and trust
There is no need to wonder whether information has been changed for one participant's personal gain because there is no third party engaged and participants share encrypted records of transactions. For example, blockchain in logistics can create smart contracts that automatically handle invoices and payments to shorten processing times and ensure accuracy.
Because the blockchain transaction records are encrypted, they are incredibly difficult to hack. Additionally, hackers would need to alter the entire chain in order to change a single record on a distributed ledger because each record is linked to the records that came before and after it.
Time and cost savings
Smart contracts do away with the need for middlemen to manage transactions, along with the fees and time delays that go along with them.
Drawbacks of smart contracts
Difficult to change
Changing smart contract processes is almost impossible, any error in the code can be time-consuming and expensive to correct.
Possibility of loopholes
According to the concept of good faith, parties will deal fairly and not get benefits unethically from a contract. However, using smart contracts makes it difficult to ensure that the terms are met according to what was agreed upon.
Although smart contracts seek to eliminate third-party involvement, it is probably impossible to eliminate them. Third parties assume different roles from the ones they take in traditional contracts. For example, lawyers will not be needed to prepare individual contracts; however, businesses need developers to understand the terms to create codes for smart contracts.
Since smart contracts include terms that are not always understood, they are not always able to handle terms and conditions that are vague.
Smart contracts contribute to the revolution of the economy. Smart contracts enhance transparency and productivity. With smart contracts, your business will take a step closer to the success of digitalization.
If you are looking for a trusted blockchain development company, VNEXT Global is the ideal choice. With 14+ years of experience, we surely can help you to optimize your business digitalization within a small budget and short time. Currently, we have 400+ IT consultants and developers in Mobile App, Web App, System, Blockchain Development and Testing Services. We have provided solutions to 600+ projects in several industries for clients worldwide. We are willing to become a companion on your way to success. Please tell us when is convenient for you to have an online meeting to discuss this further. Have a nice day!