What is a smart contract?

What is a “Smart Contract” is something you may be wondering if new to the Crypto Space. They are simple contracts that are coded on distributed ledgers to execute when specific criteria and conditions are met.

Ethereum is an open source blockchain project that was specifically put together for this concept. Which has also seen its ERC20 token setup used for launching new tokens onto the blockchain and into the cryptospace. Very commonly used for ICO’s (Initial Coin Offerings) of new ventures. As well as the smart contract potential being recognised by other platforms and cryptocurrencies in the space. Which is why we also see NEO and others offering smart contracts as part of their blockchain. There has also been software developments such as Quantum that gives smart contract abilities from Ethereum onto Bitcoin which doesn’t have smart contracts built into its blockchain.

The technology of smart contracts is still at the early stages and although being used in multiple ways I suspect it is nowhere near where smart contracts will be within even a years time. As the advantages of smart contracts allow many things to be programmed as simple functions such as a payment for the completion of a task or in an ICO’s function. You can receive payment in tokens after buying in even before they go to the market. Allowing some security in the knowledge that you have received your tokens already. Which allows you as soon as it opens on the exchange to trade the tokens without any control or manipulation being accessible from the distributor (ICO) beyond limiting the timeframe of going to market and initial market price.

In a business concept this has far reaching abilities as meeting criteria’s could automate payments as well as the ledger keeping track of what transactions occurred. Which currently may show a large group of numbers and letters as an address. But in the future I wouldn’t be surprised if this become more simplified and identifiable (if chosen to be so) to monitor business transactions which could not only speed up payments but also do a lot of the accounting work automatically. This not only offers some form of guarantee in contract form but also transparency on blockchains such as Ethereum where you can see the transactions that occur on an address.

A less complex description of how a smart contract could work is paying rent. You write a contract that is payable on a specific date and amount this goes onto the blockchain in multiple ledgers and once the criteria is met the payment is made. This may seem a very simple task but most things relating to payments can be automated, simplified,reoccurring and not require a lawyer or agent to put it together but yourself and the payee or payer. Removing middle men is a huge saving and if you tie in an ESCROW as well you are adding guaranteed payments. Something so simple can be something so brilliant.