Blockchain technology is a game-changing phenomenon that has disrupted multiple industries by enabling safe, decentralised solutions for diverse transactions and operations. Implementing smart contracts is one of the most prominent uses of blockchain technology.
A smart contract is a self-executing contract in which the conditions of the buyer-seller agreement are directly encoded into lines of code. In 2013, Ethereum, the second largest blockchain network, pioneered the notion of smart contracts. Smart contracts have now become a vital element of many businesses, providing efficient and secure solutions for various business activities.
What Are Ethereum Smart Contracts?
They are self-executing contracts with the terms of the agreement between buyer and seller being written into lines of code. These contracts run on the Ethereum blockchain, a decentralised and secure platform. The code in the smart contract is automatically executed when specific conditions are met, eliminating the need for intermediaries and increasing the efficiency and security of the transaction.
One of the primary advantages of smart contracts is that they can automate the process of contract execution, saving time and lowering the risk of human mistakes. As a result, they are ideal for a variety of industries, including banking, real estate, supply chain management, and others.
How Do Ethereum Smart Contracts Work?
Smart contracts automate the process of executing specific conditions when triggered by events, such as a transfer of funds. The requirements are pre-written in the code and enforced automatically once met. For instance, a smart contract can immediately release payment to a seller only after the buyer receives a product. In this way, smart contracts enforce the terms of an agreement automatically.
A smart contract process follows steps similar to the below example of buying and selling a product.
The buyer and the seller agree on the terms of the sale, including price and delivery date.
The buyer sends the agreed-upon amount of cryptocurrency, typically Ether, to the smart contract’s address.
The smart contract code verifies if the conditions of the sale have been met, such as the receipt of the agreed-upon amount of cryptocurrency.
If the conditions are met, the smart contract executes the terms of the agreement automatically. For example, it transfers ownership of the product to the buyer.
The buyer now has access to the product and the seller has received payment. Both parties can trust that the smart contract has fulfilled and enforced the agreement.
The Ethereum blockchain records the details of the transaction, including the product ownership transfer and payment. This provides a secure and permanent record of the transaction.
This process provides a secure and transparent way for individuals to buy and sell products using cryptocurrency. By using smart contracts, the risk of fraud and the need for intermediaries is reduced, and the process of buying and selling products is streamlined and automated.
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