Olga Zeveleva
January 2018.

What is a 'smart contract'?

1 answer

Smart contracts are an interesting idea; essentially, this is an electronic contract that everyone can see and therefore track. Smart contracts take intermediaries out of the process.

Normally, what you would do is you would write a program, run it on the computer, and get an output. What smart contracts do is they decentralise that process. So now you write a program, you put it on the blockchain, and everyone executes that program. I could have a contract with my bank saying that I am taking a loan for 1000 pounds, and I have to pay it back by December 22, 2019. If I don’t, they get ownership of my house. And this contract is published on the blockchain, and everyone executes it. And when that date arrives, if I haven’t paid back the loan, the bank can take my house because everyone now knows that I breached the contract. You don’t have to rely on a trusted intermediary anymore.

This is a very specific example, but smart contracts can be as generic as needed. So you could have a smart contract for basically anything, and that is a pretty revolutionary idea, where you can enter a contract about anything with anyone, and everyone can verify it, so there is no way for me to deny it later on, or to say I didn’t mean something or I didn’t sign something. If you could prevent that kind of fraud, it would be pretty revolutionary. 

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