What is a smart contract?
What is a smart contract? Well, a smart contract is in its essence a self-executing contract that executes when a certain criterion is fulfilled, it is fully built on the blockchain which gives it the property of being transparent as well as incorruptible (if audited thoroughly).
Okay, so let's break this down a bit shall we, what does a self-executing contract really mean, why is it incorruptible and where could these contracts be used?
By self-executing, it means that the contract will execute the agreement once the correct criterion is fulfilled, by itself, without any human interaction. A great comparison is the vending machine, with a vending machine, you can purchase a coke without a cashier, by putting in the right amount of money into the machine. A smart contract works in a similar way but with the difference of being digital and can be utilized in more areas than purchasing snacks.
So, now when you know what self-executing means in the context of a smart contract, how is it incorruptible? By building the contract on a public blockchain it is fully transparent to anyone. For one individual to change the contract, he or she will need to reach consensus within the whole network for it to be executed. The contract is pre coded with a certain action that will execute when the correct criterion is fulfilled, these criterions will not change without reaching consensus throughout the whole network. So, if you are utilizing a smart contract as an intermediary, you could rest assured that the contract will act on the action that it is set out to do. If a change occurs due to a shift in consensus (reaching over 50% agreement in the network) the change will be visible due to the public blockchain, this means that you cannot do anything without the other contracting actor knowing.
Okay, so now you know a bit more of what a smart contract is, but how can this innovation be utilized and used in our everyday life and why would you use a smart contract over a regular contract? One perk of using a smart contract over a regular contract, is that a smart contract has an automatic execution. That means that it can execute without any human interaction. With the inherent nature of being incorruptible, smart contracts can effectives and disrupt a range of different industries, especially those industries that are dependent on third party intermediaries.
With smart contracts you can essentially build the same things that you can build with a regular computer program, the difference is that you could execute action with an incorruptible and transparent contract. This is key for building more sensitive products, like financial protocols like lending/borrowing, exchanges, and insurances. With the technology of a smart contract, these services could be utilized autonomously and without human interaction.