What is a "smart contract" in blockchain?
Choose one of the following.
a) A digital agreement that determines compliance strategies for companies
b) A shared document that ensures all transactions are accurate and agreed upon
c) A permissioned distributed ledger that requires a unique identity for each user
d) A set of defined rules and logic used to execute specific business transactions
Answer (2)
A smart contract is a set of defined rules and logic used to execute specific business transactions, allowing for automated, self-executing contracts on a blockchain. They enhance efficiency, trust, and security by removing the need for intermediaries. Smart contracts are applicable in many industries, including finance and real estate.
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A 'smart contract' in blockchain is best described by option d: a set of defined rules and logic used to execute specific business transactions.
Smart contracts are self-executing contracts with the terms of the agreement directly written into code. They automatically execute, control, or document legally relevant events and actions according to the terms of a contract or an agreement. This technology was first conceptualized by Nick Szabo in the late 1990s, long before blockchain technology became widely known.
Here’s how smart contracts work:
Storage on Blockchain : The smart contract is stored in the blockchain as a program. Once added to the blockchain, it remains immutable, meaning that it cannot be changed.
Automation of Transactions : This code-based digital contract will automatically execute transactions and actions based on the coded terms and conditions. For example, if a condition is met, the smart contract will automatically carry out the agreed-upon action, such as transferring funds or goods.
Decentralization : Smart contracts are decentralized; they don’t need a central authority or intermediary to enforce the terms of the contract. Thus, transactions can occur between parties without middlemen, which can make processes faster and less expensive.
Security and Transparency : By being on the blockchain, smart contracts benefit from the security and transparency inherent in this technology. Blockchain’s distributed nature ensures that all transactions are recorded across many computers, providing a high level of trust and reducing the risk of manipulation.
Overall, smart contracts allow for more efficient and secure business transactions by embedding code into the blockchain that automatically enforces the terms and conditions of the agreement. This can significantly reduce the need for third-party oversight and lower costs associated with traditional contractual agreements.
