What is a Smart Contract?
Smart contracts are pieces of code that allow the Ethereum blockchain to immediately transport or move data. Smart Contracts are the instructions on how and when data should move. Combined with the other aspects of the blockchain, these instructions become useful because no central authority is required to approve the instructions.
Smart Contracts Are Not Automatic
Smart contracts can be thought of as self-executing pieces of code, but it’s important to note some nuances. When smart contracts operate on a blockchain, they must be initiated with a fee. Smart contracts do not run unless they are initiated. When they are initiated, they all run at the same time on all machines participating in the network. Given that all the computers are running at the same time, the nodes within the blockchain come to a consensus on the results of the code.
How Smart Contracts Payout
Since smart contracts run on specific blockchains, they pay out in the underlying cryptocurrency. For example, smart contracts written on the Ethereum blockchain would payout in ETH. Smart contracts cannot make payments or transactions in fiat currencies since fiat currencies are issued and stored at centralized institutions and not onText distributed platforms. Smart contracts are only able to issue fiat payments when fiat money is also put on a blockchain platform. This is why regulation efforts play a big role in this space.
Smart Contracts and Legal Enforceability
At this point in time, smart contracts are not legally enforceable. Smart contracts could eventually represent legal arrangements. OpenLaw is a ConsenSys spoke that is working to create, store, and execute legal contracts that are able to interact with blockchain-based smart contracts.
Applications and Smart Contracts
Smart contracts can operate with a variety of other technology including Internet of Things (IoT) devices, banking services and systems, assets, and even identities. This versatile technology can truly apply to many use cases and can be programmed to work with a range of industries.
Are Smart Contracts Actually Contracts?
Yes and no. Smart contracts are in a way an agreement but they have the functionality to show a participant whether certain requirements and conditions were met. Smart contracts also have the capability to ‘digitally lock’ an asset if the pre-set requirement or conditions are not met.