Smart contracts in blockchain: The end of contracts as we know them

Imagine a world where money is digital, secure and instantly transferable, all without the wild price swings of the crypto rollercoaster. Enter digital standards, like the ERC-20, that guide how digital coins are created. These standards form the backbone of the digital revolution, with stablecoins like USDC and USDT that are built on these standards offering ideal compatibility for smart contracts.                                          

What are smart contracts and how do they work

A smart contract is a special computer program that lives on a blockchain (like a secure online record book). This program holds the terms of an agreement between two or more parties. Imagine a smart contract like a super organised to-do list stored on a secure, shared computer system called a blockchain. It outlines the steps everyone agrees to, like sending a payment or delivering a product. The smart contract then automatically checks off tasks as they're completed, making sure the deal happens without anyone needing to constantly monitor it.

Unlike traditional agreements where you need lawyers, regulators and other suits to ensure all terms have been adhered to, smart contracts authenticate deals through a network of nodes. These nodes verify and validate all aspects of the transaction, eliminating the need to constantly question each other's intentions. This is what they mean when they call it “trustless”. 

Benefits of smart contracts

Smart contracts are the most talked about development in the blockchain world and are becoming increasingly popular in the financial world – and it's easy to tell why. When computer scientist Nick Szabo conceived the idea for smart contracts, he wanted to change the fickle nature of the contract game at the time.

Smart contracts eradicate the fickleness of traditional contracts in three main ways.

• They eliminate counterparty risk

Counterparty risk is possible in traditional centralised systems because the enforcer is a human - who can be biased or corrupt. Smart contracts are decentralised, automated, and immutable - making them perfect enforcers of solid agreements.

Smart contracts work like an escrow system. Basically an “if-then” system of managing transactions between parties. If one party's needs are met, then the transaction can be verified and completed. 

Imagine a writer doing some work for a client’s website. The client can lock funds into a smart contract until the writer delivers work that meets the clients specifications. When the former is satisfied, funds can be immediately released to the writer. If the writer fails to satisfy the client, funds are sent back to the client and the contract is cancelled. 

Smart contracts are useful in larger scale use cases too.

Smart contracts can revolutionise supply chains. A manufacturer could set up a smart contract that automatically triggers payments to suppliers the moment goods are scanned as received at a warehouse. Additionally, it could track the quality of goods and adjust payments accordingly. This system reduces transaction delays and increases trust in complex supply chains.

• They enhance record keeping

No more disputes about what was agreed in the past. No side arguments can be made under the guise of context either. This is because smart contracts record and secure the terms of the contract on the blockchain. 

They do this through lines of code on the network that prevent malicious actors from altering any details. These records are immutable and timeless. Smart contracts have been embraced the most on the Ethereum network - with the ERC-20 being the anchor for smart contracts.  

• They enhance security

Smart contracts offer enhanced security by leveraging the immutability of blockchain technology. Once deployed, the terms of a contract and its transaction history become nearly impossible to change. This tamper-resistance ensures that no single party can manipulate the agreement and provides a clear audit trail. 

The decentralised nature of blockchains, where information is spread across a network of computers, provides another layer of security. There's no single point of failure, and consensus mechanisms ensure the network agrees on the validity of transactions.

Smart contracts: The future of blockchain

The potential benefits of smart contracts are still being fully realised. As adoption grows and use cases expand, we're likely to see them reshape industries from finance to healthcare to supply chain logistics. The future is decentralised, automated, and more secure – and smart contracts are paving the way.