Smart contracts are a set of instructions translated to computer code to execute, facilitate and complete commercial agreements. In order to create a smart contract, a programmer must transform a conventional contract’s terms and conditions to computer code. The script is uploaded to the blockchain, generating a decentralized contract that is not connected to a third party for enforcement. In other words, these self-executing scripts allow machines equipped with virtual wallets to engage in financial transactions with other computers without additional assistance. Some believe smart contracts are the wave of the future as they have the potential to transform a number of industries that rely on complex transactions for commerce.
The History of Smart Contracts
A computer scientist named Nick Szabo created smart contracts in 1997. Szabo used the intricacies of automatic vending machines as the foundation for his smart contracts. Szabo viewed these contracts as an important progression that steers people away from paper systems to those of the digital variety for the utmost efficiency.
Fast forward to 2008 and Szabo’s vision was brought to life in the form of Bitcoin. Bitcoin emerged as a breakthrough means of transferring value in the form of ownership rights. Bitcoin requires the use of contractual provisions within computer code for self-execution when a specific condition is met. These conditions are contractual promises that are processed on the blockchain without the need for human interaction.
The Many Advantages of Smart Contracts
Smart contracts feature an array of advantages, especially when it comes to fairly simple transactions. These contracts are managed in an automatic manner on the blockchain without the need for any type of intermediary or other third-party. The result is the bare minimum in costs, lightning fast execution and highly efficient commerce.
All documents on the blockchain are encrypted so there is no concern over smart contract security. In fact, numerous other industries are looking into using this highly secure technology for other purposes. Since smart contracts are converted into code, there is less risk of human err, misinterpretation, uncertainty or other mistakes.
Are There Potential Roadblocks in the Path of Smart Contracts?
Smart contracts are certainly efficient yet there is the potential for legislatures and other government authorities to regulate this technology as it is integrated into the mainstream. One has to wonder what will become of smart contracts if they are regulated in one area and unregulated in another state or region. There is also the matter of global privacy laws that some argue are violated by blockchain as its inherent transparency might conflict with the right to privacy. If you use smart contracts, avoid disclosing personal identifiable data as detailed in state laws.
Stay tuned to smart contract developments including potential regulations and other laws. Some futurists argue these contracts have the potential to replace tangible money. It might not be long until businesses of all types, including law firms, rely on smart contracts for financial transactions and commerce.