Smart Contracts in Blockchain

In this blockchain tutorial, we will learn about smart contracts in blockchain. Also, we will cover these topics.

  • History of Smart Contract
  • Definition of Smart Contract
  • Properties of Smart Contract
  • Ricardian Contracts
  • Difference between Smart Contract & Ricardian Contracts

History of Smart Contract

– Nick Szabo

“A smart contract is an electronic transaction
protocol that executes the terms of a contract.
The general objectives are to satisfy common
contractual conditions (such as payment terms, liens,
con identiality, and even enforcement), minimize
exceptions both malicious and accidental, and
minimize the need for trusted intermediaries. Related
economic goals include lowering fraud loss,
arbitrations and enforcement costs, and other
transaction costs.”
  • Smart contracts are used before the introduction of bitcoins. Even bitcoins uses smart contract functionality in 2009.
  • Smart contracts were general purpose computers that support writing any program. Bitcoin used a limited edition of smart contract.
  • Smart contracts execute automatically based upon the instructions coded in. To understand better you compare it with the todays automation tools where program code each.
  • Smart contract computer programs are fault-tolerant and executable in a reasonable (finite) amount of time.
  • Blockchain provlearnides a secure network that is required to run smart contracts .
  • The legality of smart contracts is uncertain in many jurisdictions.Computer code is not acceptable in the court and Smart contracts can’t be written in natural language.
  • Smart contracts do what they are programmed to do. So they are actually not ‘smart’ also they product same results every time for a particular query.
  • Legal Knowledge Interchange Format (LKIF) is the work of few people who have tried to combine both smart contract code and natural language contracts through linking contract terms with machine-understandable elements.
smart contracts in blockchain

Read Blockchain Uses Other than Currencies

Definition of Smart Contracts

Smart contracts are software programs on a blockchain that run when predetermined conditions are satisfied. It automatically executes an agreement so that all participants can immediately know the outcome without the intervention of any third party.

Properties of Smart Contracts

  • Automatically executable
  • Enforceable
  • Secure
  • Deterministic
  • Semantically sound
  • Unstoppable

1. Automatically Execuatble

Step-by-step instructions are coded in a smart contract and these codes execute automatically on blockchain.

2. Enforceable

Enforceable means that all contract conditions are enforced automatically with any human intervention in the blockchain.

3. Secure

Smart contracts are unbreakable protocols that run with security guarantees from the blockchain. Please note that security is a very large term, If the source code of smart code is incorrect, incomplete, or creates a leak in the system then security could be compromised otherwise it’s unbreakable.

4. Deterministic

Deterministic is one of the important properties in the smart contract. It states Same smart contract will always produce the same output. This point can also be added to security. Any deviation to the output means the security is compromised.

5. Semantically Sound

Semantically sound means the smart contract is meaningful to both computers and people. Remember we discussed LKIF in the history section of this tutorial.

6. Unstoppable

Smart contracts have the security of blockchain. Intruders and attackers can try but they won’t be able to interrupt the execution of smart contracts.

Also, read Digital Signature in Blockchain

Recardian Contracts

Ricardian contract writes a document that is understood and accepted by both a court of law and computer software.

  • In the late 1990s, Ricardian contracts were proposed by Ian Grigg in the Cryptography in 7 Layers paper.
  • Earlier it was used for payment system and bond trading called Ricardo.
  • Recardian contract identies the issuer and captures all the terms, conditions and clauses of contract in a document file to make it acceptable as a legally binding contract.

Properties of Ricardian Contracts

  1. This contract is offered by issuer to the holder and it has signatures of both the parties.
  2. Like other physical contracts it can be read by people or court.
  3. same contract can be read by computer aswell.
  4. It is digitally signed and carries keys and server information.
  5. It is allied with a unique and secure identifier.

Read Cryptography in Blockchain

Difference Between Smart Contract and Ricardian Contract

In this section, we will cover some of the major differences between Smart contracts and Ricardian contracts.

Both the contracts are secure, save cost and time, are transparent in nature, and can be trusted. But still, there are a few key points of difference.

BasisSmart ContractRicardian Contract
DefinitionIt is an electronic agreement that executes automatically.It is a human-readable contract between two parties.
Adaptability It does not adapt the properties of the Ricardian contract easily. As the conversion of code to human-readable form is complex in this methodHalf of the Ricardian contract works on smart contracts. So we can say that it can easily adapt the smart contract.
ScalabilityOnce the contract is created it is not possible to add new items to it. So it is non-scalable or complex to scale.It is flexible and can be scaled with new rules if required.
ReadabilityOnly machines can understand the contract.Both machines and humans can read the contract.
Court AcceptanceSince the court can’t read the smart contract so these are not accepted in court.Ricardian contracts can be read by humans and machines. Due to this reason court accepts this type of contract.

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In this tutorial, we have learned about smart contracts in blockchain. Also, we have covered these topics.

  • History of Smart Contract
  • Definition of Smart Contract
  • Properties of Smart Contract
  • Ricardian Contracts
  • Difference between Smart Contract and Ricardian Contract