Crypto Smart Contracts - A Beginners Guide
What is a Smart Contract?
In simple terms, a smart contract is a computer code that runs when certain conditions are met. Unlike a traditional contract between two parties, where one may assume the responsibility of fulfilling all the other parties’ obligations, a smart contract assigns the entire liability for fulfilling a user’s requirements to the entire network of computers and people who made and run the code. These “stipulations” or “conditions” include the requirements necessary to run the code as well as any other rules the code must follow. A user can trigger a smart contract by programming conditions into the code. Once triggered, the code runs according to stipulations and performs the pre-approved tasks.
What are the Benefits of Using a Smart Contract?
Smart contracts can function as a layer of encryption between two parties. It provides a level of trust and transparency that would otherwise be lacking in a traditional setting. They can also be used to facilitate a wide range of financial transactions, from buying stocks and bonds to trading virtual goods and services. The following are some of the benefits of using a smart contract: - Simplicity: Smart contracts are easy to code, operate on a low-overhead blockchain network, have low processing fees, and are generally free from third-party intermediaries. - Transparency: Blockchain-based smart contracts are transparent. They allow for public view and shared audit trail, as well as traceability of assets through the supply chain. - Trustworthy: Smart contracts are produced by decentralized, trustless platforms with no middleman. This removes the risk of fraud and creates a trustworthy environment. - Trustworthy, flexible: The ability to create code that automatically performs predetermined tasks, whether that’s fulfilling a contract or paying a debt, means that contracts can be tailored to suit the requirements of individual users. This flexibility allows for AI-based smart contracts that take into account preferences, financial situations, and other factors. - Empowerment: Users can also create decentralized apps (dApps) using smart contracts. These dApps run on decentralized, trustless platforms with no middleman. This means that the users provide the code, and the dApps perform the tasks necessary to execute the code. This combination of features makes it possible for users to maintain complete autonomy over their funds and data.
What are the Disadvantages of Using a Smart Contract?
While smart contracts have a lot of potential benefits, it’s important to acknowledge that there are also risks associated with their use. The biggest disadvantage of using a smart contract is the potential for human error. Apart from that, some risk-prone industries like finance and law still prefer traditional contracts over smart ones. Another disadvantage of smart contracts is the fact that they are not always infallible. Since they are based on blockchain technology, some risks remain with the programmability of smart contracts.
Last, but not least, remember security is very important and the saying 'Not Your Crypto, Not Your Keys' is commonly heard in the space. Invest in a hardware wallet asap!