Smart contracts will rock your digital world.

An application of blockchain technology, the encryption software that underlays Bitcoin and other cryptocurrencies, smart contracts are digital agreements that execute automatically based on real-world data.

Smart contracts are digital agreements that execute automatically based on real-world data.

While the adoption of smart contracts has the potential to recast the foundations of how digital assets are traded and data is stored and managed, use of the technology hasn’t become widespread. But that’s about to change.

Companies and governments around the world are assessing the potential for smart contracts and blockchain technology to reduce costs and enhance data security.

Smart contracts and blockchain technology allow the decentralized transfer, verification, and storage of assets on the Internet, with a myriad applications in: Gaming, banking, real estate, healthcare, electronic journalism, share trading and clearance, trade finance, supply-chain management, food services and peer-to-peer financial transactions.

Smart contracts and blockchain technology allow the decentralized transfer, verification, and storage of assets on the Internet.

“At core, these automated contracts work like any other computer program’s if-then statements,” Fast Company reporter Jay Cassano wrote in 2014 in his article, What Are Smart Contracts? Cryptocurrency’s Killer App. “They just happen to be doing it in a way that interacts with real-world assets.

“When a pre-programmed condition is triggered, the smart contract executes the corresponding contractual clause,” wrote Cassano.

For simplification, think of smart contracts as cost-effective digital agreements that do not require an intermediary to execute settlement of the recorded agreements between people and organizations, and leave no ambiguity as to terms and settlement.

Think of smart contracts as cost-effective digital agreements that do not require an intermediary to execute settlement of the recorded agreements between people and organizations, and leave no ambiguity as to terms and settlement.

That smart contracts run on blockchain technology is significant for several reasons, said Ledger Labs Josh Stark in a CoinDesk article published last year.

“First, the program itself is recorded on the blockchain, which gives it blockchain’s characteristic permanence and censorship resistance. Second, the program can itself control blockchain assets — i.e., it can store and transfer amounts of cryptocurrency. Third, the program is executed by the blockchain, meaning it will always execute as written and no one can interfere with its operation.”

At Etherparty, we recognize and harness the potential that smart contracts create in building a trustless, and thus far more efficient, economy.

Built on Ethereum, we’re an easy-to-use smart contract creator that allows users to compile and deploy contracts without any coding knowledge.

“Ethereum is a platform for distributed computing and at the core of this technology is conditionality that adds instructions to blockchain transactions,” said Etherparty CEO Kevin Hobbs.

“By using a front-end for smart contract creation, writing a smart contract is as simple as filling out a form. The platform removes the complexity and technical programming involved with smart contract creation by implementing visual tools and a simple interface.”

“Etherparty removes the complexity and technical programming involved with smart contract creation by implementing visual tools and a simple interface.” — CEO Kevin Hobbs

Etherparty’s smart contract technology operates below the surface of the platform-as-a-service. The process of creating and executing a smart contract involves three main steps: coding the digital agreement, deploying the smart contract via distributed ledgers, and executing the contract by agreement of the involved network computers.

How smart contracts work

Programmed to respond to very specific triggers or outcomes, smart contracts are coded with predefined behaviours to ensure precision of execution; they do not offer opportunity for ambiguity of terms. For example, an option contract between two parties is written as code, and it is this code that defines the assets, rules and properties of the contract.

Next, the smart contract code is compiled and shared with other computers using a communication protocol that allows networked computers around the world to communicate with each other in near real-time. These computers are known as nodes within the network, and the sharing of the contract is done through a blockchain transaction.

The network computers then validate and execute the transaction, which can involve cryptocurrencies, records, contracts, or other data, and merges the transaction with others to form a new block of data.

This new block is added to the existing blockchain, becoming immutable so that the transaction, and the contract within it, can not be altered yet can be reviewed at any point in time. The contract is ready to execute its rules now.

Smart contracts are reactive entities, and only react to external events initiated outside the contract. A contract is never proactively seeking changes in the world to react to. Returning to the options contract example, this might be an external price change event in an options market that will send the price event to the contract, executing code inside the contract that transfers the optioned asset away to the new owner.

Etherparty is currently in development; look for a demo announcement coming soon. In the meantime, sign up to receive our product roadmap and architecture paper, and keep in touch with us on Twitter at @etherparty_io.