The technology, according to experts, is characterized by a high level of security, reliability, truthfulness, as well as by immutability, transparency, and high speed of operations. The capabilities of the system have just begun to be used, but if we consider the capabilities more carefully, we will see that the use of blockchain technologies can simplify a number of economic and accounting operations. It can be applied in fiscal policy, election, banking, the judicial system, notary, etc. Blockchain services can be used to optimize the public administration of the state. Their potential is almost unlimited with its effective use.
So what is a smart contract?
It is a computer algorithm which aims to conclude and maintain the phased execution of commercial contracts in the blockchain technology. As for the form of implementation, a smart contract is a computer program, an algorithm of actions reflected in the blockchain network. The terms of such a contract can be interpreted and executed by the system only in an unambiguously way.
Today, as practice shows, blockchain technologies are relevant for business, as they not only optimize costs but also guarantee the transparency of economic activity by means of smart - contracts.
Does the smart-contract meet the essential conditions and requirements to the commercial contract?
The content of the co0mmercial contract is made up of its conditions, which are defined by the agreement of the parties and are aimed at establishing, changing or terminating of business obligations that are agreed by the parties and comply with applicable law. A commercial contract is concluded if the parties have reached an agreement on all its essential conditions (subject, price, and duration). Generally, a commercial contract is concluded in the form of a single document signed by the parties. The simplified form is allowed as well. It can be made in a form of exchange of letters, etc., as well as by confirmation of acceptance of orders for their further execution.
How does a smart contract work?
After agreeing on the conditions of the smart contract, the parties sign it in the system, using similar signature mechanisms to confirm the transaction in cryptocurrency networks. After the parties sign the smart contract, as well as any commercial contract it comes into force (unless otherwise is provided in the contract or by the current legislation).
The process of smart-contract execution takes place in the environment of its existence, which guarantees its automation and execution. To implement contracts in the blockchain system, they must have a clear mathematical and logical form and execution mechanism. The system independently monitors the performance of the smart-contract and operates according to a clearly defined algorithm. In case of failure to fulfill the conditions or in case a certain condition, the system independently blocks the execution of the contract, etc.
Where do smart contracts work today?
Contracts are concluded with the help of blockchain technologies. Popular blockchains where today you can sign smart contracts are the following: Bitcoin, Side Chains, NXT, Ethereum. Side Chains and NXT present slightly more opportunities to work with contracts than Bitcoin. NXT, for example, as an open platform with a limited number of smart-contract images, does not allow you to write your own code, unlike, for example, Ethereum.
The advantages of smart-contracts are the convenience, security in terms of the fact that the contract is stored in encrypted form and in a distributed ledger, reliability since the contract is repeatedly duplicated by the system, and mathematical accuracy.
Active use of smart contracts requires extensive use of commercial, public and private keys. The existence and development of decentralized bases for the implementation of transactions, the work of which excludes the human factor. Expansion of the smart contract execution environment and assurance of digital data sources reliability.
Thus, the basic principle of the smart-contract, as well as of any agreement, is made up of the clear execution of its terms as well as of blocking the execution of the agreement in case of violation of the obligations by one of the parties to the agreement.