A smart contract is a digital version of a standard paper contract, the terms of which are checked and executed automatically. In this case, an intermediary is not needed, since the contract code is checked by all network participants. The terms of the agreement are stored in a distributed database and cannot be changed.
The idea was proposed back in 1994 by the American scientist and digital currency researcher Nick Szabo.
On the one hand, a smart contract is just a program code, a common application like a calculator, messenger, or video game. On the other hand, a smart contract is a fundamental element of any distributed application (DApp) that operates in an environment without trust or centralized authority, such as a website administrator or government.
Where can smart contracts be applied?
Clearing in trade operations, coin converter crypto, and supply chains are the first candidates for the implementation of smart contracts. Other promising areas are healthcare, insurance, media, energy, archiving, and voting.
Why aren’t smart contracts used in all areas?
One of the main technical barriers to the full-scale implementation of smart contracts is the need to create effective and reliable oracles (external agents that are responsible for the reliability of the information provided from the outside). Oracles can be measuring instruments (thermometer or light sensor); specific network participants who provide services to the blockchain system; decentralized systems with their own consensus mechanisms built on top of the main ledger and more.
Another problem is the need for a new regulatory environment that takes into account the capabilities of the blockchain and determines the legal force of smart contracts (for example, ownership of real estate or items).
Summing up, we can say that smart contracts are a worthy replacement for classic and standard contracts. They greatly simplify the transaction process, provide a certain percentage of security, accuracy, and environmental friendliness of the transaction. However, there are still many issues that need to be worked out before contracts can be fully implemented in our lives.