One of the key advantages of the blockchain technology is that it is a decentralized system enabling direct interaction between people without the involvement of a third party. Whereas earlier a bank intermediation was needed to complete a transaction (with the associated commission payable), with the development of cryptography, the need for intermediaries is shrinking to zero. Cryptocurrencies certainly do have their issues, but it would be unreasonable to deny that they are safer, more reliable and faster than traditional systems.
The idea of smart contracts was first conceived in 1993 by a lawyer and cryptographer by the name of Nick Szabo. Nick realized that a distributed ledger could be used for electronic contracts — the terms and conditions of a transaction converted into a digital code and controlled by the computer running the blockchain. At the time, the physical implementation of the idea was a long way away, but things were set in motion. It was not until 2013 that programmer Vitalik Buterin, creator of Ethereum platform, managed to put Nick Szabo’s idea into practice.
In short, a smart contract is a computer code running on blockchain and containing a set of rules under which the parties to a relevant contract undertake to interact with each other. If all the terms and conditions are met, the transaction is considered to be successfully made. In other words, a smart contract acts as an impartial electronic arbitrator monitoring the transparency of the transaction and making sure no party acts in bad faith.
Today, the system is widely implemented in various blockchain projects, and many experts are predicting for it a great future in global trade. Indeed, the emergence of smart contracts marks a new era in business and not business alone. It was even proposed that they should be introduced into political processes. For example, legislation could be amended to oblige a newly elected president to enter into a smart contract which would terminate his powers if he does not comply with any item on his program. It sounds unthinkable today, but who knows how the world will change in the coming years …
Our story about this technology would be incomplete if we do not mention some aspects complicating the implementation of this remarkable innovation. Smart contracts do not seem to have any significant shortcomings, except, perhaps, for their static nature. On the one hand, the fact that the contract cannot be changed is a benefit preventing fraud, but, on the other hand, at the moment, the system lacks flexibility. Other challenges include the uncertainties concerning the regulatory framework to be adopted by authorities. Different states have different laws, and therefore many technological innovations, faced with misunderstanding and restrictions, take a long time to get implemented.