What are Smart Contracts?

Smart Contracts are agreements between parties whose execution is automatic, this automation being carried out by a computer code that translates legal speech into an executable program.

Smart Contracts run on the Blockchain network, which makes them extremely secure and reliable.

Understanding Common or Traditional Contracts

The common or traditional contract is an agreement between two or more parties and has the objective of committing to some obligations.

For some contracts witnesses are used, others are used notaries. However, there is always a third-party agent.

There are common contracts that are scanned and saved on a computer, with the aim of facilitating storage and automating the analysis of their content. Still, there is a need for a third party to validate it.

An example of a traditional contract is the lease of a property, which is a document with the objective of assigning an asset for a certain period. In exchange for the use, the lessee pays the owner of the property (lessor) the rent. The contract specifies all the obligations of the lessee and also the obligations of the owner of the property (lessor). With the registry in the notary's office, the document does not run the risk of being defrauded in addition to giving it legal value.

Functioning of Smart Contracts

Smart Contracts are codes written in a programming language and as the clauses contained in the codes are satisfied, the contract will execute itself. That is, the programming language has everything that will happen with the contract. So when the conditions stipulated by the parties are being implemented, the contract is being executed.

There is no need to trust whether people will fulfill the contract or not, as it will fulfill itself according to the rules established in the code. In addition, Blockchain technology guarantees the immutability of the data of this contract, reinforcing its security.

Money, property or anything else of value can be exchanged, ensuring full transparency, avoiding intermediary services and charges. All this running automatically.

Some usage examples:

• Promise to buy and sell a property;
• Purchase and sale of copyright;
• Music license;
• Assignment of rights;
• Buying and selling cryptocurrencies.

Why do smart contracts dispense with intermediaries?

• An application can perform actions automatically as soon as the conditions programmed into its code are met;
• Once programmed and agreed between the parties, the code will be fulfilled without interference and without the need for validation by a third party;
• They establish their trust in mathematics and computing through Blockchain technology. If the contract is accepted by both sides, the immutability of data and the impossibility of human interference makes the contract reliable and the third validator unnecessary.

How does Blockchain support Smart Contracts?

• Has a distributed and decentralized database;
• The Information Record is reliable, difficult to tamper with, and cannot be modified (immutable);
• Information is automated; and the configured blocks that can be copied between replicates;
• Ability to detail, render accounts and have more transparency;

Conclusion

Smart Contracts are being negotiated as disruption, that is, the process is being changed between parties.

The significant reduction in the cost of running an operation is an economic advantage that smart contracts have over traditional contracts. In addition, as it runs on top of Blockchain technology, it ensures data immutability, reliability and information security.

In this way, all parties involved in the Smart Contract will have the advancement of this innovative technology.

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Pablo Henrique Pereira – Master in Administration, SAP SCM APO Specialist at ArcelorMittal Sistemas.

Blockchain:?https://www.dhirubhai.net/pulse/blockchain-na-cadeia-de-suprimentos-pablo-pereira/

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