Simple guide to Smart Contracts

As ADA is set to finally get smart contracts I found it fit to try and make a simple and understandable guide as to how smart contracts work, what they do and why they’re regarded as beneficial.

How Smart Contracts work:

The fundamentals of a smart contract is quite easy to explain. They’re programs on the blockchain (made up by code) that executes certain actions when specific predetermined conditions are met and have been verified. Simply put the contracts works by “If/when…then…” statements. They can also be described as self-executing contracts written into lines of code that binds two or more people on predetermined agreements while also excluding an centralized authority, legal system or other external enforcement mechanism.

The benefits of Smart Contracts:

So why use smart contracts? Why not just have a third party confirm a transaction or some other mechanism? Well, simply put, it takes more time, costs more money, isn’t as trustworthy and is prone to human error and/or manipulation.

Smart contracts are set on predetermined conditions met by both parties of the contracts meaning that when a conditions is met the contract executes automatically. You don’t need to file any paperwork and no third party needs to be involved, it’s efficient. That also leads to the other beneficial part, all transactions are transparent because encrypted records of all transactions are shared across the participants. Encrypted records also means better protection from hackers, especially when every record on a distributed ledger is connected to each other. You would have to hack an entire chain of records just to change one and that’s not easy.

Summary/TL:DR

So, to summarize, smart contracts bring more efficiency, more security, more transparency and cost less. The one drawback it can have is the risk of having bad coding, but with ADA I don’t really think that will be an issue!

Hope you guys learned something from this and take care!

Sources: - https://www.ibm.com/topics/smart-contracts - https://blockgeeks.com/guides/smart-contracts/ - https://www.investopedia.com/terms/s/smart-contracts.asp

Ps. If the format is a bit weird it’s because I’m writing this on mobile. Might delete and repost if it’s a big issue for people.