What are Smart Contracts and what are they for?

¿What are Smart Contracts and what are they for? Before talking about what a smart contract is, it is necessary to understand why it was created Bitcoin.

Bitcoin, the first cryptocurrency on the market, it was created by a person (or group of people) named Satoshi Nakamoto, in 2009. However, long before that, back in 1983, a group of people already began to think that the world, in the future , you would need a digital currency.

This group of people later became called Cypherpunks and they wanted to create a digital currency that was decentralized, that is, controlled by no one, just the computer code and all the users of that code.

Its objective was to eliminate intermediaries and thereby guarantee trust, because if no one is the 'owner' of a currency, everyone is the owner and works for the common good. With this idea Bitcoin was born.

Shortly before Bitcoin was born, the same cypherpunks also discussed that they needed to create ways to establish self-executing contracts, that is, a contract that, when the clauses were fulfilled, would not need to rely on the goodwill of the other party to fulfill the contract. I would run alone.

To give an easier to understand example, think of the lottery. When you buy the lottery ticket and win, you have to wait for someone to pay you the prize as soon as you present the winning ticket. In the case of a smart contract this does not happen. As soon as they give you your ticket, the prize will automatically go to you, without depending on anyone.

That's what the cypherpunks thought, that in the era of the massive internet (as we have it today) people would need smart contracts because there would no longer be physical limits and negotiations, operations and all life would be done digitally.

The Cypherpunks were the precursors to the creation of Bitcoin and smart contracts.

What are Smart Contracts and what are they for?

Therefore, the term smart contract or “smart contract” it can refer to any contract that is capable of being executed or executed by itself, formalizing negotiations between two or more parties, without centralized intermediaries.

In this sense, a smart contract is nothing more than a code that can define strict rules and consequences in the same way as a traditional legal document, establishing the obligations, benefits and penalties that can be owed to any of the parties in several different. circumstances, providing reliability in the relationships between the network.

Do you remember our lottery? So, for example, in the smart contract it would be programmed that a certain ticket would be delivered and that the prize would be US$10. Upon finding the winning ticket, the winner would only need to scan the QR Code and enter the data to receive the prize and that's it, upon receiving the winner's information and validating the ticket information, the smart contract itself would deliver the prize to the winner. .

Therefore, in a smart contract, the clauses must be partially or fully self-executing, self-binding, or both. Once these requirements are met, the smart contract technology can proceed with the automatic completion of transactions.

Thus, the smart contract, by solving the problem of trust without the need for a third party or centralized intermediary, can reduce transaction costs and prices for the consumer, as well as increase the freedom of businesses to be managed in the way they want. companies want. the people involved in the process want something better.

What are Smart Contracts and what are they for? ethereum

Ethereum was the first major open smart contract platform which allowed any developer to use its tools to create their own smart contract. Nowadays, Ethereum has many competitors like Cardano, Solana, Klatyn, among others, but all with the same goal, to allow developers to create solutions to automate contracts and eliminate intermediaries.

Therefore, the Ethereum platform allows developers to create programs and execute them with the basic features of Blockchain technology using smart contracts to perform actions automatically with the conditions previously established in the algorithm.

Among the uses of smart contracts, they can: manage user agreements, provide utility to other contracts, be used as multi-signature accounts, and store information about an application. Therefore, smart contracts can be used in various situations, such as:

1- Logistics and supply chain
2- Copyright
3- Elections
4- Internet of Things (IoT)
5- Property Laws
6- Financial services
7- Insurance policies

One of the main advantages of smart contracts is undoubtedly autonomy. That is because you can solve everything yourself, without the need to hire intermediaries in the negotiations. In addition, we have the advantage of security, since the documents are encrypted and distributed through the nodes of the network.

That is, it cannot be lost or changed without permission. Another advantage is that trading with smart contracts is much faster than the traditional way where you have to spend a lot of time to do the document processing manually.

In addition to saving time, we also save money, since you don't have to hire a middleman. On the other hand, as a disadvantage we have the human factor, the uncertain legal status and the implementation costs.

The human fact refers to the fact that the code is written by people, who can make mistakes and once the contract is in the blockchain it is impossible to make changes. The uncertain legal status is a disadvantage, as it means that the government has not yet regulated this process. Finally, we have the implementation costs, resulting from the expenses with the programming of the contracts.

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