History of Smart Contracts

The first introduction of smart contracts was in 1994 by Nick Szabo, an American computer scientist. He described them as computerized protocols that could execute contracts and complete transactions. In 1998, Szabo created “Bit Gold,” one of the earliest virtual currencies. This was a decade before Bitcoin’s introduction. Many believe Szabo is the true inventor of Bitcoin, known under the pseudonym Satoshi Nakamoto, though Szabo has denied these theories.

Szabo predicted that smart contracts would play a significant role in executing synthetic assets like bonds and derivatives. Today, industries such as supply chain management, real estate, and healthcare use smart contracts. In finance, smart contracts facilitate crypto trading, driving the growth of cryptocurrencies worldwide.

Smart Contract Uses

Due to the design of smart contracts, they have numerous uses. The primary and most straightforward use of a smart contract is to ensure that a transaction occurs between the parties involved. A great example of this is the buying and selling of goods. Based on the terms of the contract, the supplier sends the shipment, and upon arrival, the contract automatically executes, prompting the buyer to send payment.

Smart contracts have many applications. In the health industry, smart contracts safeguard the efficacy of various medications by allowing parties to monitor the temperature of shipments containing lifesaving drugs. They share the data accurately and reliably across multiple parties. Additionally, smart contracts enhance the efficiency of international trade by facilitating a standardized trading system that reduces risk and friction.

Smart Contract Pros and Cons

Advantages

The primary advantage of smart contracts is that they remove the need for a third party to facilitate a transaction. This brings several benefits to the process. First, it increases transaction efficiency because the contracts execute automatically, eliminating the need for someone to actively confirm completion. This speeds up the process and optimizes agreements, allowing the parties involved to advance their businesses faster.

Smart contracts also enhance transaction accuracy by removing the need for human intervention. This eliminates the chance of errors, preventing mistakes that waste time and money. Additionally, smart contracts remain immutable, ensuring their security and reliability for trades. This reduces fraudulent activity and saves money by preventing potential cyber-attacks.

Disadvantages

There are, however, some disadvantages of smart contracts that are worth mentioning. First of all, because smart contracts are immutable, the programming of the contract cannot be changed. This means that if there are mistakes when the contract is made, you can’t go back and alter it to correct it. This can lead to delays in completing transactions and parties not receiving the correct payment.

Although smart contracts take away the need for a human to execute the contract, it still takes a human to make the code for the agreement. This opens up the possibility for errors while the programmer creates the smart contract. Some loopholes can exist in the coding of contracts, leading to inappropriate execution of contracts and problems.

What Blockchain has Smart Contracts?

The best example of a cryptocurrency that uses smart contracts on its blockchain is Ethereum. It is one of the main reasons why Ethereum grew so significantly and was what set it apart from the most popular cryptocurrency in the world, Bitcoin. However, Bitcoin can now also use smart contracts due to its Taproot upgrade.

Conclusion