One of the key technology innovations of second-generation blockchains has been the development of what are called smart contracts.
Smart contracts are computer code that is stored inside of a blockchain, which encode contractual agreements.
Smart contracts are self-executing, with the terms of the agreement or operation directly written in two lines of code, which are stored and executed on the blockchain computer.
Contracts in our Current World
A contract in the traditional sense is a binding agreement between two or more parties to do or not to do something.
Each party must trust the other parties to fill their side of the obligation.
They are a written or spoken agreement that is intended to be enforced by law.
A multiplicity of different contractual agreements form the institutional foundations of our modern society and economy, which have evolved since ancient times.
If we think about something as seemingly simple as a cafe serving a cup of coffee, we will see that this process requires a massive amount of contractual agreements between different parties that enable them to cooperate in delivering that outcome.
Contracts between employees and employers of the coffee shop, contracts that provide workers with health coverage, contracts that ensure the coffee shop, contracts between suppliers along the supply chain, contracts between property owners and tenants, and the list goes on.
Our economies are powered by a massively complex set of contractual agreements that are currently created and enforced by centralized organizations like insurance companies and banks, which themselves are supported by the ultimate centralized authority in the system, the nation-state system.
Our societies and economies are almost completely dependent upon third party organizations to maintain and enforce these contractual agreements.
The Contracts of the Future
Smart contracts feature the same kind of agreements, to act or not act, but they remove the need for the trusted third-party between members of the contract.
This is because a smart contract is both defined by the computer code, and executed or enforced by the code itself, automatically without discretion.
As such, blockchains and smart contract technology can remove the reliance on centralized systems and enable people to create their own contractual agreements, which can be automatically enforced and executed by computer code.
Smart contracts are themselves decentralized – in that, they do not subsist on a single centralized server, but are distributed and self-executing across a network of nodes.
This means that untrusted parties can transact with each other in a much more fluid fashion, without depending upon third parties to initiate and maintain the rules of the transaction.
Likewise, smart contracts enable autonomy between members, meaning that after it is launched and running, a contract and its initiating agents don’t need to be in further contact.
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Learn everything you need to know about the blockchain here:
• Blockchain Introduction:
• Blockchain Overview:
• How Blockchain Works:
• Blockchain Evolution:
• The Decentralized Web:
• Distributed Organizations:
• Distributed Ledgers:
• Smart Contracts:
• Distributed Applications:
• The Internet of Value:
• Token Economies:
• Decentralized Autonomous Organizations:
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