What is a Smart Contract?

How it was born, how it works and why YOU should know all about it.

With all the hype around Blockchain, ICOs and Smart Contracts, a question naturally comes to the mind of people getting into the crypto world. What exactly is a Smart Contract?

Let’s quote a definition from Investopedia:

Smart Contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network. Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism. They render transactions traceable, transparent, and irreversible.

In a few words, Smart Contracts help you exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman. But let’s start from the beginning.

Background & History

The first person to propose the concept of Smart Contract was Nick Szabo, a computer scientist, legal scholar, and cryptographer who is a well respected academic with research in digital contracts and digital currency. The year was 1994, well before any blockchain technology was even in existence.

Nick Szabo, in 1996, described a smart contract as “ a set of promises, specified in digital form, including protocols within which the parties perform on these promises…”

What Nick Szabo realized was that a decentralized ledger could be used for smart contracts, otherwise called self-executing contracts, blockchain contracts, or digital contracts. In this format, contracts could be converted to computer code, stored and replicated on the system and supervised by the network of computers that run the blockchain. This would also result in ledger feedback such as transferring money and receiving the product or service.

In short, you can setup a digital, binding agreement between a stranger and yourself. You do not care to trust this stranger. And that’s okay! Because with smart contracts, they require no trust, as in a trustless agreement. The agreement is public knowledge (via the public ledger) and is fully transparent so both parties know what they are agreeing to.

It’s all programming logic at the end of the day. The outcomes are predefined in the contract which are dependent on the actions of the parties involved in the smart contract. When both parties fulfil their obligations, the smart contract will know which action to take. For example, releasing funds to the seller once the buyer confirms the delivery of the package. Take it a step further and have the funds release automatically by means of tracking the shipment via the tracking number. Want more security or peace of mind? One can require this smart contract to hold escrows by both parties to ensure no foul play is involved or they risk losing their escrow deposit.

Now that the technology is mature for this kind of applications, many new companies are taking advantage of smart contracts. A great example is BitNautic, a company that is building a platform for the naval logistics industry. By using Smart contracts and blockchain technology, it’s possible to design faster and safer transactions, each regulated by a smart contract that implements an escrow mechanism, with funds being hold within the smart contract until the deal is succesfully completed and all the parties are satisfied. In case of any dispute, a special team will take care of the issue and solve it in the most impartial way.

Why should I care?

The market for smart contract applications is booming. With ICOs it is possible to get directly involved in the development of the products, to invest in them and to gain benefits from their progress. You can just surf around the Web, find the most promising projects and contribute by buying their tokens.

You should definitely check out BitNautic’s website: great Team, great idea, great market. Don’t miss this one!

To know more visit: BitNautic

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