Of the various terms in the blockchain network, one term is very important to know, namely smart contracts.

A smart contract is used when two parties use an automatic contract on the blockchain system.

Later, without the need for third-party intervention, all transactions that occur in this smart contract will be directly processed by the blockchain.

Let’s look at the following review to understand more about what a smart contract means in crypto assets and how it works.

What is Smart Contracts?

You need to know that a smart contract is a digital contract automatically executed based on computer code without needing a third party as an intermediary.

Smart contracts run on blockchain technology, which uses distribution and cryptographic principles to maintain data integrity.

In a smart contract, the terms of the transaction agreement between the buyer and the seller are automatically included in the code line.

Furthermore, the code will be stored in every node in the entire blockchain network.

This automatic smart contract will make all transactions on blockchain technology completely controlled and transparent.

Plus, the code is decentralized and distributed on the network.

Thus, users can easily track all transactions. In addition, security is also guaranteed.

Then, all parties involved can also make exchanges without a central authority.

Therefore, smart contract users can even anonymously make trusted agreements, so they don’t need legal or legal mechanisms.

The History of the Formation of Smart Contracts

The history of smart contracts began in 1994. At that time, a cryptographer named Nick Szabo created a smart contract using the program to record contracts in computer code.

The contract will be active by itself if the conditions written in it have been fulfilled.

The purpose of making smart contracts by Nick Szabo is to directly execute all existing transaction processes without intermediaries (third parties), such as lawyers, banks, and others.

Later, the smart contract will be executed directly through a trusted network, and a computer will control everything.

Being a beginner in smart contracts, Nick Szabo also wrote a book called Smart Contracts: Building Blocks for Digital Free Markets, which reviews the initial ideas related to making smart contracts.

Fifteen years later, in 2009, Bitcoin also appeared with blockchain technology.

Meanwhile, Satoshi Nakamoto, the inventor of Bitcoin, is an anonymous figure who introduces this new technology.

Then, blockchain technology was further developed by Vitalik Buterin to present the existing smart contracts.

The goal is that these smart contracts can be applied and empowered to solve various problems in the real world.

Finally, in 2015, Ethereum also introduced its smart contract with all its advantages.

Advantages and Disadvantages of Smart Contracts

Of course, any new technology will have two sides, both advantages, and disadvantages, including smart contracts.

The following are points regarding the advantages and disadvantages of smart contracts, including:

1. Advantages

• A smart contract that operates transparently will provide high trust for its users
• The automation process of the smart contract will provide high accuracy
• With a decentralized system in smart contracts, the security of user data will be guaranteed
• Smart contracts are proven to be more cost-effective because there are no more transaction costs that need to be incurred, as is the case for transactions using intermediary services
• Cryptographic technology and highly sophisticated system encryption on smart contracts will protect user documents properly
• Smart contracts no longer require manual data recording, so the process will be faster and create transaction efficiency

2. Disadvantages

• It is still vulnerable to human error because programmers fully make the code in the smart contract.
• The smart contract program does not have clear legal provisions/regulations.
• Smart contract code requires qualified programmer expertise and must not fail, so the program must work with the principle of high maintenance.

How Smart Contracts Work

Consider the following illustration to understand how smart contracts work better.

Suppose two people want to buy and sell a house, and these two parties use smart contracts on the Ethereum blockchain network to make a transaction agreement.

The smart contract contains an agreement made and signed by both parties in the sale and purchase transaction of the house in question.

In summary, here is the content of their agreement:

“The buyer will receive the right to own the house as agreed in the agreement with the seller after paying 150 Ether to the seller….”

Referring to the contents of the smart contract above, the buyer will later get the house he wanted to buy from the seller when he has paid 150 Ether to the seller.

It is also important to know that your contract can no longer be changed.

Therefore, the blockchain system will immediately process smart contracts with conditions that have been fulfilled.

Use of Smart Contracts

The use of smart contracts is currently increasingly popular in the business world, ranging from the financial services industry, credit authorization, insurance, trade, and crowdfunding agreements (ICO) to legal proceedings.

The following are several other fields and industries that also use smart contracts, including:

1. Government sector

The use of smart contracts in the government sector will help create an electoral system that is fairer and guaranteed security.

For example, in terms of voting, applications like FollowMyVote can protect votes from fraud.

Using a smart contract, all votes will be written into the blockchain network so they cannot be changed.

Then, after the voting ends, the smart contract will send the token to the address representing the party that won the vote.

Therefore, the voting process is guaranteed to be fairer and more accountable.

2. Health industry

Smart contracts in the health industry record and transfer patient data.

For example, the EncrypGen program allows patients to control their data.

If a researcher wants to use the patient’s data, he must pay for the patient.

Patients will also be able to determine whether or not their medical data can be sold to the researcher.

How to Make Smart Contracts

A smart contract can be created by utilizing a blockchain network-based platform, for example, Ethereum and NEO.

In this case, Ethereum (commonly called Ethereum contract or Ethereum smart contract) is one of the most used platforms.

Meanwhile, the language used to generate a smart contract here is Solidity, Ethereum’s native coding language.

In making this Ethereum smart contract, especially regarding crypto assets, a special code is needed according to the crypto token to be created.

The user must enter the code into the Ethereum network for it to work optimally.

If the code is ready, the user can deploy the contract via the Ethereum wallet.

As a result, users will have their tokens and can distribute them on the Ethereum wallet marketplace.

Conclusion

In conclusion, a smart contract is the term used when two parties use an automatic contract on the blockchain system.

In a smart contract, the terms of the transaction agreement between the buyer and the seller are automatically included in the code line.

Furthermore, the code will be stored in every node in the entire blockchain network.

This automatic smart contract will make all transactions on blockchain technology completely controlled and transparent.