A smart contract is an autonomous program that runs on the blockchain network when certain predefined conditions are met. It is a tamper-proof program. These contracts are the future of the internet. But are they the answer to all our problems? Let’s find out! Until then, let’s take a look at some of the key issues surrounding smart contracts. Then, we’ll discuss the benefits and challenges.
Challenge
A fundamental challenge to a smart contract is its ability to execute. It must be able to pull funds from the appropriate wallets to carry out a transaction. Typically, organizations will move funds around, so the smart contract may not be able to pull funds from the right wallets. However, a text document accompanying the smart contract can be used to populate the code. In this way, coding errors and oracle failures can be accounted for.
Benefits
Unlike traditional contracts, smart contracts do not require human intervention to execute. In fact, most of the time, these contracts do not even require any human intervention, as all of the necessary details are already pre-programmed. In addition, smart contracts have certain advantages over traditional contracts, including the elimination of third-party fees and the potential for human error. While traditional contracts are difficult to set up and require legal expertise, they are also prone to disagreement and interpretation. On the other hand, smart contracts create a set of rules for the exchange system, meaning they will execute themselves automatically without any human intervention.
Another benefit of smart contracts is that they allow for voting systems, including the addition of new members, altering debating periods, and changing the majority rule. In addition, smart contracts can be used for voting within a decentralized autonomous organization. They can also be used to automatically transfer payments and conduct bookkeeping. These benefits aren’t limited to start-ups. Instead, they are beneficial to established companies. This type of technology is a great way to automate business processes, such as payments and bookkeeping.
Trustless aspect
A major benefit of smart contracts is their trustless nature. This means that a person can’t be held responsible for anything that happens. For instance, a store could set up a payment system to release funds as soon as a particular number of apples is accounted for. This would make people more interested in supply because the payment would be released instantly. On the other hand, a smart contract could be traced, and the store would decide whether to work with or avoid a particular party.
The DAO incident suggests that a smart contract can never be completely trustless. Since trust is a crucial component of human relationships, it is necessary to transfer it to developers and coders who can be trusted. In some cases, this can lead to distrust among users because of a power imbalance and lack of alignment of interest. As such, censorship resistance may not be necessary for all smart contracts. For example, some users may prefer the speed of transactions over censorship resistance.
Cost-efficiency
The cost-efficiency of smart contracts is one of the key considerations when considering this technology. Unlike traditional processes, smart contracts are not dependent on human intervention. Since they are automated and based on a distributed ledger, the risks of manual error are minimized. Additionally, the security of digital transactions is boosted by the use of a decentralized database and the consensus mechanism of the DLT. Overall, smart contracts are considered to be an efficient alternative to traditional processes. They can greatly improve the speed and efficiency of business deals while lowering costs through the delegation of tasks to computer-based software.
A good example of this is vending machines. In the old days, a person would insert money in the machine, insert a code, and wait for the item to appear. Now, smart contracts would automatically enforce the conditions when they are met, eliminating the need for a middleman and thereby reducing the risk of scams. They also offer the added benefit of being decentralized, meaning that no one has to rely on any other parties.
