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Overview of the concept, characteristics, application and development prospects of smart contracts

August 31, 2021


Nowadays, our lives are almost inseparable from contracts. To be bigger, work is to sign a labor contract with a company, to buy a house is to sign a house purchase contract with a real estate company, and to buy insurance is to sign an insurance contract with an insurance company; Takeaways, taxi rides, and lottery tickets are all contracts with related service providers. It can be said that the contract is used where there are people.

   Even if we bet with someone, it is a kind of contract, but if one party denies it, it will become difficult to fulfill the contract. If there is a kind of contract, the rules are determined in advance, and once the relevant clauses are triggered, the contract will be automatically executed without human intervention, and there is no need to worry about denial. Is there such a contract? Really, this is a smart contract.

  What is a smart contract?

Smart Contract (Smart Contract) is a concept proposed by cryptographer Nick Sabo in the 1990s. Due to the lack of a credible execution environment at that time, smart contracts were not applied and developed. It was not until the emergence of Ethereum that smart contracts could be used. "resurrection".

  What exactly is a smart contract? Simply put, a smart contract is a contract that uses computer language instead of legal language to record terms and is automatically executed by a program. In other words, a smart contract is a digital version of a traditional contract, which runs on the blockchain network and is automatically executed by the program.

   Vending machines and ATM cash machines can be understood to some extent as machines that execute smart contracts, but these are not smart contracts in the true sense.

   What are the characteristics of smart contracts?

   Compared with traditional contracts, smart contracts have three major characteristics:

  1. The content of the contract is open and transparent

   The smart contract is deployed on the blockchain, and the content of the contract is naturally open and transparent.

  2, the content of the contract cannot be tampered with

   Similarly, because of deployment on the blockchain, the content of the smart contract cannot be modified.

  3、Permanent operation

   The smart contract running on the blockchain is also jointly maintained by the network nodes on the blockchain. As long as the blockchain is present, the smart contract can run forever. There is a sense of brotherhood that "the chain is in the contract."

  The smart contract with the three major characteristics of the blockchain has the following advantages compared with the traditional contract:

   1. To trust.

  Because the smart contract is based on the blockchain, the content of the contract is open and transparent, and cannot be tampered with. Code is law. Based on the trust in the code, traders can conduct transactions with peace of mind and security in an untrusted environment.

  2, economical and efficient

  Compared with traditional contracts, disputes are often caused due to differences in understanding of contract terms; smart contracts use calculation language to avoid differences and hardly cause disputes, and the cost of reaching a consensus is very low. On the smart contract, the result of the arbitration comes out and the execution takes effect immediately. Therefore, compared with traditional contracts, smart contracts have economic and efficient advantages.

  3. No need for third-party arbitration

   Suppose Xiong Yama and Xiong Er bet on whether it will rain tomorrow, and the party who loses needs to give the other 100 yuan. If the loser denies, the winner will not be rewarded. For this reason, it is inefficient and time-consuming to find a third-party arbitration institution. But if the bet is written on the smart contract, when the bet is reached, 100 yuan will be credited to the smart contract address, and the smart contract will be automatically executed according to the final result, and the winning party will take all the rewards. It can be seen that there is no need for third-party arbitration for smart contracts.

   Are smart contracts really smart?

   The above are all the advantages of smart contracts. Are smart contracts really smart and have no disadvantages? In fact, smart contracts also have their shortcomings.

  As mentioned above, the immutable nature of smart contracts makes it easy to establish trust. But at the same time, there is a bad side. If there are loopholes in the smart contract, hackers can use the loopholes in the smart contract to make money for themselves.

   To give a simple example, a vending machine originally sold for 5 yuan for a drink. Due to negligence, it was written as 5 cents. After the administrator found out, he could immediately correct it. But if this vending machine calls a smart contract on the blockchain, then this error cannot be corrected until the drinks in it are sold out.

   On the other hand, the smart contract itself cannot obtain (perceive) external information. It involves the need for external information to arbitrate the contract, and it needs to write relevant information to it before it can make a ruling. For example, the example of Xiong Da and Xiong Er betting whether it will rain tomorrow, the smart contract itself does not know whether it will rain the next day, and it needs to provide information for it through other information sources, such as the Central Meteorological Observatory data. After this information, smart The contract can make a ruling.

   From the above two points, smart contracts are neither perfect nor smart.


   In summary, regarding smart contracts, we know:

  Smart contract is a contract that uses computer language to replace legal language to record terms and is automatically executed by a program. Deployed on the block, it also has the characteristics of openness, transparency, non-tampering, and permanent operation of block chain data.

   Compared with traditional contracts, smart contracts have the advantages of trustlessness, safety, efficiency, and no need for third-party arbitration. But smart contracts are not perfect, and they are not smart, or their smartness is very low.

   The article mentioned that the execution of smart contracts does not require a third-party ruling. At the same time, it is mentioned that when the execution conditions involve external information, the smart contract cannot perceive it. It is necessary to input relevant information to the smart contract to trigger the smart contract to execute the ruling. Do you think these two statements contradict each other? Welcome to share your views in the message area.