Developing financial technologies go beyond international banking systems day by day. Banks do not hesitate to use new players in the sector in this fintech race that has been going on among themselves for many years.
At this stage, a new player, “blockchain”, emerges. The systems and decentralized infrastructure provided by the blockchain attract the attention of the fintech world.
One of the most unique features of blockchain is the decentralized quality of action that is shared among all parties of the network, thus eliminating the involvement of intermediaries or third-party intermediaries. This feature is extremely important because it saves you the possibility of any process conflicts and saves your time. Although blockchain offers faster, cheaper and more efficient options compared to traditional systems, it also has some unresolved issues.
Smart contracts emerging at this stage can be called the most used application of blockchain technology. In fact, long before blockchain, smart contracts, introduced by prominent cryptographer Nick Szabo in 1994, have become the most important element of blockchain today.
The current world we live in still generally works on paper-based contracts. Even if digital contracts are used in some sectors, the participation of a third party in the system becomes mandatory. Third-party involvement can cause security issues or fraudulent activity, with transaction fees increasing. With the introduction of blockchain in the field of digital technology, we are able to solve such issues effectively. Blockchain allows all entities in the network to interact with each other in a distributed manner, eliminating the need for any trusted third parties.
Blockchain technology, as it is known, attracted attention with the introduction of Bitcoin, the first and most established crypto currency to date. Apart from crypto money applications, there is a great demand for blockchain technology and it continues to be developed in this field by turning to different industries. Smart contracts have also become one of the most successful applications of blockchain technology.
The use of smart contracts instead of traditional contracts significantly reduces transaction costs and eliminates many trust problems in the system.
Ethereum is the most popular blockchain platform used to create smart contracts. It shines a light on other blockchain projects by using smart contracts on its platform for the first time.
In any market, smart contracts have the potential to automate too much to employ people.
So what are these smart contracts?
According to Wikipedia, smart contracts are a computer protocol aimed at facilitating, verifying or executing the negotiation or performance of a contract.
In another definition, smart contracts are a set of computer code between two or more parties running on a blockchain and consist of a set of rules agreed upon by the parties involved.
With predefined rules, smart contracts are itself the executive body to produce the output. This piece of code allows for decentralized automation by facilitating, validating and enforcing the terms of a basic agreement. Smart contracts allow you to transparently exchange anything of value such as money, stocks, properties, eliminating the need for middlemen and keeping the system secure.
For example, we normally need a lawyer or a notary to get a document registered with the court and we have to make some payments for these services. However, with smart contracts, the scenario can change completely. When you run this process with smart contracts, you get the document you need by making a small payment without the need for a lawyer or notary, and this event takes place without the involvement of any third party.
In addition, smart contracts are not only limited to defining the rules around any agreement, but are also responsible for automatically enforcing those rules and obligations.
Let's take a look at how smart contracts can bring benefits to our daily lives:
1- Instant Verification
In smart contracts, transactions take place as soon as the contract terms are met. Written contracts can potentially take up a lot of time, such as moving the contract to another location after a contract is signed. Smart contracts are confirmed at that moment and the transaction takes place. You don't have to go from point a to point b for this.
2- Reliability and Transparency
The answer to the question of why you should trust a smart contract is actually hidden in the blockchain infrastructure and features. In other words, any transaction you make on the blockchain does not change, so whatever smart contract exists is that transaction. It cannot be changed later or subjected to cyber attacks. The system is built in a way that has never been seen before.
Since all smart contracts are backed up hundreds or thousands of times over a large network, other copied data is not affected and lost from a problem in a block. In addition, this data is in a form that can be reviewed by others. This happens because of the transparency feature from the blockchain.
3- Anonymous Structure
Blockchain has a transparent structure as we mentioned in the previous article. However, it keeps its users private and everyone is anonymous. You can scan blockchain addresses on it or enter a relevant database, view transactions. But you don't know whose transactions are.
We can say that there is an enhanced secrecy in this sea of anonymous addresses. However, new smart contract technologies use privacy permissions to ensure that only those with the appropriate roles or access levels can see it.
Security and privacy of smart contracts will be made more standard and secure as smart contracts continue to enter the reputable business world.