- 1Smart Contract Explained
- 2How Do Smart Contracts Work
- 3Smart Contracts Benefits
- 4Smart Contracts Use Cases
Contracts, whether they are leases, mortgages, loans, or for services, have been around a long time. But when something goes wrong and one party fails to perform their part of the contract, what happens?
Then you have to go back and forth with them until they come around. And if they don’t? Then you have to call an attorney or a mediator to help persuade them. At that point, you are looking at spending hours and thousands of dollars to get the other party to simply execute their half of the contract.
While traditional contracts require both parties to execute their responsibilities, smart contracts self-execute predefined actions when specific conditions associated with a given transaction are met. An easy way to understand smart contract is to view it as “programmable money.”
For example, if you are a landlord your tenants have leases. The smart contract contains key data of both parties such as the name, contact information, bank account details as well as information about the lease itself including lease amount and payment date. When a smart contract self-executes on the pre-defined lease payment date, it automatically withdraws funds from the tenant’s bank account and deposits the funds into your account. This saves you the monthly rental statements in advance, of reminding the tenant to pay, and from hounding the tenant once the late date has passed, never mind eviction notices, court dates, and attorney’s fees.
What do smart contracts have to do with the blockchain? Smart contracts are kept on the blockchain and are executed automatically when a transaction is processed. And because data on the blockchain is immutable – cannot be changed or manipulated by anyone – smart contracts, once agreed upon, should help build trust between all parties as neither side can play with the contract or its terms.