A Smart Contract in Blockchain

Moving on from my first note – An Introduction to Blockchain - it is time to understand what a smart contract in blockchain means.

A smart contract is a code in the block of the blockchain. The code defines the set of rules of interaction between two or more parties in an agreement. When the rules are followed the agreement is executed. The agreement can be legal or financial.

Since a smart contract is code based and programmed, the entire chain of events that occur, right from verification of the agreement to its enforcement are automated. As per smart contract the digital assets are distributed automatically to the beneficiaries. This is because blockchain’s distributed ledger technology enables all the stakeholders to give their consensus in the execution of the contract. Thereby making its execution a hassle-free and transparent process.

Since smart contract is driven by auto-enforceable code on an application or protocol level the cost of finalising and enforcing an agreement or a transaction is greatly reduced. Compliance and enforcement happen on a go making the smart contract super-fast, self-verifying, self-executing and tamper-proof. And gets rid of the middleman in the process.