When we buy a house we have to sign a sales contract with the seller, but this is not a simple process: we need a bank, a notary, a land registry and a lot of paperwork.Smart contracts,which have emerged fromblockchain, technology, promise to simplify this type of process as much as possible.
WHAT IS A SMART CONTRACT
A smart contract is an agreement between two people or entities in the form of computer code programmed to execute automatically. The idea was proposed in the 1990s by Nick Szabo, a pioneer of modern computer science, who defined them as a set of virtual promises with associated protocols to enforce them. The Bitcoin protocol, which basically records the proof of a payment, can be seen as a primitive version of a smart contract.
Smart contracts are executed on blockchain, which means that the terms are stored in a distributed database and cannot be changed. Transactions are also processed on the blockchain, which automates payments and counterparties. Since the emergence of the digital currency Ethereum, the creation and execution of smart contracts has been simplified, as complex transactions can be programmed into the Ethereum protocol.
HOW DOES A SMART CONTRACT WORK
The operation of a smart contract is similar to otherblockchaintransfers. These are the necessary steps:
1. A user initiates a transaction from theirblockchainwallet.
2. The transaction arrives at the distributeddatabase,where the identity is confirmed.
3. The transaction, which may be atransferof funds, is approved.
4. The transaction includes thecodethat defines what type of transaction is to be executed.
5. The transactions are added as ablockwithin the blockchain.
6. Any change incontractstatus follows the same process to be updated.
SMART CONTRACTS PLATFORMS
Below, we review some of the most widely used platforms to develop and execute smart contracts on blockchain:
- Ethereum: smart contracts are written in a programming language called Solidity and executed by the Ethereum virtual machine. It is currently the most popular.
- Hyperledger: an open source system developed by the Linux Foundation that is not a cryptocurrency, but a flexible platform on which smart contracts can be developed.
- Counterparty: this platform incorporates data into Bitcoin transactions, i.e. it uses the cryptocurrency's blockchain and allows contracts to be developed on it.
- Polkadot: it is an alternative to blockchain and is famous for its ability to host parachains, chains within chains, allowing more transactions than usual.
SMART CONTRACT APPLICATIONS (EXAMPLES)
Smart contracts have applications in all areas where traditional contracts are currently signed:
Records
Smart contracts will facilitate the storage and maintenance of records. For example, the millions of confidential patient records that need to be securely stored and updated.
Trade
Most commercial activities depend on the approval of their funding, which is a time-consuming and resource-intensive process. Thanks to smart contracts, this time can be dramatically reduced.
Supply chains
Internet of Things devices can be used throughout the supply chain to record every step of a product and improve its traceability. In this way, errors, theft and loss can be eliminated.
Mortgages
Mortgage transactions based on smart contracts will be cheaper, faster and safer. This will allow buyers to access the property earlier and update the records automatically.
Property market
Smart contracts can be used to register property ownership more efficiently. Moreover, their use can extend beyond flats, buildings or land and register all types of assets.
