A smart contract is a piece of software that automatically executes a pre-determined set of actions when a certain set of criteria or met.
One of the key tenets of smart contracts is their ability to perform credible transactions without third parties and are self-executing, with their conditions written into the lines of code that form them
Additionally, these transactions are both trackable and irreversible.
For example, a smart contract could be used to give royalty payouts to a musical artist each time a song is played on the radio.
The contract detects when the song is played, and then automatically sends a payout to the artist or artist.
All parties involved in a smart contract must agree to the terms of the contract before it can be executed.
They must also consent to any changes made to the contract. Transactions made through a smart contract are traceable and irreversible.
Smart contracts were first proposed in 1994 by American computer Scientist Nick Szabo. Szabo created a digital currency called “Bit Gold” in 1998, over 10 years before the creation of Bitcoin.
Benefits of Smart Contracts
Many proponents of smart contracts point to many kinds of contractual clauses that could be made partially or fully self-executing, self-enforcing, or simply both.
Conversely, smart contracts can lead to a situation where bugs or including security holes are visible to all yet may not be quickly fixed.
The fundamental goal of smart contracts is to provide additional layers of security that are superior to traditional contract law.
In doing so, this reduces other transaction costs associated with contracting.
Smart contracts appear most prevalently in the cryptocurrency space, having implemented countless instances of smart contracts.