Smart Contracts: Features, Types & More

In the previous article edition, we discussed the types of Consensus Mechanism that you get a quick look at here. Smart contracts are programs simply stored in a blockchain network that works in the format of if/when...then statements that are executable codes written on a blockchain. They are used for the automation of the execution of the predetermined conditions to cancel out the intermediary interventions and related possible errors. This saves time, cost, and the possibility of human errors.?It can be defined as a crypto contract that supervises the transfer of digital assets among the participating parties. Let's get to know about its characteristics, types, and benefits in detail.??

What is a Smart Contract?

A smart contract, as its name suggests works like a traditional contract along with the additional benefits of digital automation and no human intervention at each step of execution.?As non-digital contracts are enforced by the laws, this one is enforced by executable codes.?Are you wondering, who invented it? Back in the year 1994, legal scholar and cryptographer, Nick Szabo, evaluated the significance of the application of decentralized ledger technology for smart contracts.?Codes can be written to automate the workflow, next to-be happen actions when certain conditions are met.

Characteristics of Smart Contracts

After understanding the basic overview of smart contracts, now let's get to know their characteristics in a better light.??

• Transparency: It is one of the key features of smart contracts enabling the visibility of contracts to all the participants of the network. It allows parties to agree to given terms without the dependencies on the intermediaries.?
• Speed: Smart contracts offer speed and efficiency because they execute immediately saving time & cost. There's no paperwork involved and hence cancels out the possible human errors that may occur in the traditional contract execution cycle.??
• Autonomy: Smart Contracts do not involve intermediaries and it is made & shared by the participating parties.?It is made and maintained by all the nodes in the given network.?
• Immutability: Smart contracts, once deployed cannot be altered. It can only be removed from the network when the previous action is taken well. Therefore, it supports the feature of immutability making it secure, reliable, and scalable.?
• Distribution: A smart contract once made is distributed among the blockchain network participating ensuring each member has a copy of it, and no one can make changes to it.?Its replication is distributed well across the network for a well-defined execution of the agreement.
• Determination: No matter who executes the developed smart contract, it will only be executed when the pre-defined conditions are met, hence giving it the additional feature of being deterministic.?
• Less Human Intervention: With lesser involvement of human intervention or intermediaries, smart contracts prevent possible human errors, which in turn makes it super secure, and a reliable solution for sensitive processes such as agreements.?
• High Encryption: Smart contracts enable the feature of high encryption and its shared data is encrypted enough to be shared on the given blockchain network.

Types of Smart Contracts

Let's take a quick look at the types of smart contracts mentioned in the points given below:

• Application Logic Contracts (ALC): Such types of smart contracts work under a managing program and allow devices to work autonomously.?It has the benefit of enabling communication across different platforms including the merger of the Internet of Things (IoT) with blockchain tech. It comes up with the extra benefits of scalability, automation, and cost-effective execution.
• Decentralized Autonomous Organization (DAO): DAO (Decentralized Autonomous Organization) is bound by specific rules that are executed with the written codes and has diverse use cases. This entity-led organization is open-source with no governing authority and features scalability, immutability, and transparency.?
• Smart Legal Contracts: Such contracts are enforced by laws and require parties to satisfy their obligations. If not complying with the requirements, legal actions can also be taken against the agreement parties.?

How do Smart Contracts Work?

Now, it's time to understand how smart contracts work. The working of these digital contracts can be understood with the steps explained further.?

Step 1: Identify the agreement terms before beginning the process.?

Step 2: Turn the contract terms/points into an executable code.

Step 3: Store the code in the blockchain and replicate it with nodes across it.

Step 4: Encryption is executed in the blockchain network technology.?

Step 5: Pending execution and processing is completed at this step.

Step 6: Finally, if the contract terms are satisfied, the network participants verify it from their end.??

Final Words

In this article, we tried to give you an insight into what is a smart contract, its types, their characteristics, and how does it work? Share you thoughts in the comment section and leave your suggestions for upcoming topics.