With so many terms being thrown about in the digital world, you may have heard about smart contracts too. So what exactly is it?

A smart contract is a self-executing program with pre-set conditions defined by the creator of the agreement – smart because it’s executing something automatically once the requirements are met, and ‘crypto’ because it’s using the principles of cryptography.

How does it work?

By using blockchain and cryptography, smart contracts are supervised by a network of computers that run the blockchain, so peer-to-peer agreements are executed without going through a middleman, such as lawyers. These smart contracts contain codes that will facilitate, verify and implement the agreement without outside interference.

While the majority of cryptocurrencies use smart contracts, this term is often associated with the Ethereum platform as it uses blockchain technology to let anyone create a smart contract for any purpose.

Smart contracts also have the potential to go beyond facilitating transactions. Depending on how it is programmed, a smart contract can also interact with decentralised applications. For example, if the contract says “do X on Y date”, it will do just that. The possibilities for smart agreements are endless. What’s even better is that smart contracts are more flexible than real agreements, as it can do more than a real one with the help of the software.

How is it currently used?

The Ethereum platform uses smart contracts for the pre-sale and distribution of tokens. Based on the terms of the smart contract, Ether can be collected and distributed to cryptocurrency wallets across the globe. By using a smart contract, you can rest assured that you will get your tokens back once you’ve given your Ether to an online company. Through the use of such technology, there is no longer the need for trust when you transact online, and peace of mind is a given.

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