What is Smart Contract?
Smart Contract is a term describing a special protocol capable of implementing terms and monitoring agreements thanks to the support of blockchain technology.
Imagine you want to sell a house. This requires a fairly complex process, exposure to many customers and a high level of risk. Therefore, most people turn to real estate brokers for assistance with advertising, settling procedures and monitoring agreements between the two sides. However, these intermediaries often charge quite high fees, causing financial burden.
Smart Contact was created to revolutionized commodity trading, remove difficulties for both customer and seller. It works under the “If-Then” principle, It means that the buyers only given ownership if the agreed amount is transferred to the system.
A special feature of Smart Contract is that it can operate independently or simultaneously with many other Smart Contracts. They allow link establishment and follow in a specific order. For example, when contract A is completed, contract B is automatically activated.
In theory, an entire operation of an organization can operate through Smart Contact. In fact, many cryptocurrency systems have been implemented following this model. Based on available rules, the system will operate itself without technician work.
For example, GES Global is using the Ethereum Blockchain based-on Smart Contract for the entire gaming ecosystem, e-wallets and decentralized exchanges. For example, buying and selling in-game items with a GES Token secured with Smart Contract significantly increases reliability, security, and maximizes cost savings.
“The goal of GES is to become the Blockchain platform pioneering the digital age, setting the launchpad for the Smart Contract-based payment ecosystem with high transparency, easy access, and cannot be tampered with.”, GES said.
Smart Contract development history
Smart Contract was first introduced by computer scientist Nick Szabo in 1996. In many years, Szabo has gradually perfected this concept and published a number of publication describing how to set up trading contract e-commerce man-to-man.
By 1998, Nick Szabo designed the decentralized mechanism for digital currencies called Bit Gold. However, Smart Contract has to wait a decade to be implemented thanks to the proper environment of Bitcoin blockchain.
3 Object in Smart Contract
Basically, there are three indispensable objects in Smart Contract. The first is the signer, from two individuals / organizations or more accepting or rejecting the terms through digital signatures.
Secondly, the object of the agreement exists in the environment of Smart Contract and does not limit the access of the system. In fact, the concept of Smart Contract has been around since 1996, but the development was limited due to the second object and only partially solved when Bitcoin appeared in 2009.
The final is specific terms. They are recorded in high-level programming language, suitable to the environment of Smart Contract. The terms include the relevant rules and penalties.
Smart Contract Environment
Congruous environment is a condition for Smart Contract to work correctly. First of all, the environment needs to be compatible with the public encryption key, allowing users to log in through a unique code. It is a common method that is being used by most cryptocurrency systems.
To confirm transparency and independence, Smart Contract needs an open and decentralized database. In addition, the contract must be decentralized. Therefore, blockchain, especially the Ethereum blockchain is the perfect environment for smart contracts.
Finally, the supply for Smart Contract needs to be truly reliable. This requires developers to use native SSL security certificates, HTTPS and other secure connection protocols that are implemented on most software today.
Advantages and disadvantages of Smart Contract
Smart Contract provides with autonomy, by passing intermediaries to control transactions. In addition, the entire contract is encrypted and stored on a secure database, preventing unauthorized interference from third parties. Smart Contract also helps you save time on manual paper processing and delivery costs.
Despite its great potential, Smart Contract is a relatively new technology and still has limitations, possibly derived from the human element. A flaw in programming code can cause problems and the developer cannot change it when uploading to the blockchain, thereby creating a hole for the hacker to exploit. A good example is the DAO attack, which vaporized Ethereum worth USD 50 million in 2016. Moreover, the trend of using Smart Contract may attract the attention of government agencies and entail legally binding, instead of the current “Code is Law” principle.