Smart contract – what is it in the blockchain?
Blockchain has already changed our lives by providing reliable and decentralized solutions. Records in the blockchain are immutable, which makes it highly trustworthy. Smart contracts enable fast and efficient cryptocurrency transactions.
What is a Smart Contract?
A smart contract is an application in a specific cryptocurrency's blockchain. Such an application is cryptographically secure and allows users to conduct transactions openly, providing transaction information to all participants. In essence, a smart contract is a digital version of real-world contracts on paper that confirm the execution of important actions.
The main advantages of smart contracts are:
- Error-free execution - the process is fully automated, eliminating human error.
- No intermediaries or fees - smart contracts are executed without intermediaries, with the only fee being gas fees.
- Transaction speed - execution time starts from a few seconds.
- No downtime and enhanced security.
In which areas can smart contracts be used?
Smart contracts are primarily used where transparency is needed:
- Insurance and real estate transactions.
- Supply chain tracking.
- Healthcare.
- Bank loans.
- Elections and government activities.
In most of these areas, smart contracts are already being used and delivering results.
In the cryptocurrency space, smart contracts are used in blockchains of various coins, including Bitcoin, Ethereum, Stellar, Neo, EOS, etc.
What are the disadvantages of smart contracts?
The main disadvantage is the lack of legal regulation in most countries. Concepts such as "cryptocurrency," "blockchain," or "smart contracts" are unfamiliar to legislation. Therefore, users' funds are not protected by the law.
Other drawbacks include:
- Vulnerability - many users are unaware of the functionality of smart contracts, and there is a risk that the code may behave incorrectly.
- Lack of trust - blockchain is a young technology that not everyone trusts.
- Immutability - when new circumstances arise, it is important to reflect them in the contract. However, a smart contract does not allow changes to be made, creating an internal conflict in such applications.