Smart contracts are basically little bits of computer code that perform a given set of instructions.
Smart contracts are:
Secure: They use cryptography to stop people altering records.
Transparent: Everyone can see on the blockchain what the smart contract is and what it’s being used for.
Third-party free: Smart contracts don’t need a middleman to verify. The blockchain does that for you. Autonomous: They work automatically, so you’re not having to wait for someone to push a button.
Accurate: Because smart contracts are written in code, they don’t rely on the grey areas of a language and what words mean.If this happens, do thisAt the heart of a smart contract tends to be a mechanism that says (in computer code) “if this happens, then do this”.
These already exist today. Let’s say you want to pay for something using a debit or credit card. The software your bank runs on will use the “if this happens, then do this” in the following way: If the amount in the bank account is larger than the sum requested, release the funds.
If the amount in the bank account is smaller than the sum requested, don’t release the funds.
Smart contracts on the other hand has no third party) being the controller of that decision, as the blockchain is given all the task.
So taking the above example and applying it to a smart contract built on a blockchain you’d see the following:
If the amount in the digital wallet is larger and has not been spent already, release the funds.
Also, If the amount in the digital wallet is smaller, or has been spent already, do not release the funds.
Smart contracts will automatically execute when pre-defined conditions are met.