Smart contracts are the building block of decentralized platforms for crypto-assets. These are special kind of agreements that are crucial for the tokenization process. These agreements operate in the digital ecosystem. These contracts are executing on their own based on different variables.
There are several advantages for deploying smart contracts according to some literature:
- there is no need to rely on a middleman with other transaction, since blockchains are of decentralized nature;
- contracts are more secure that ordinary contracts of tangible nature because when changing the terms of the smart contract there is necessary to write new blocks faster than the network can (which statistically is almost impossible);
- blockchain smart contracts can execute faster than the middle man.1
The beauty of the smart contracts is as follows: if one of the parties in contract fails to uphold the contract, then it automatically returns the funds, value, information, goods to their original owners.2 It is kind of utopian view of gentlemen’s agreement where with the firm handshake important deal has been concluded. Any lawyer will tell you that it is “pacta sunt servanda” (agreements must be kept) principle at its best.
Nowadays legal environment is very dynamic and business oriented with valuable goods and services at stake, hence parties hire expensive lawyers who draft pages and pages of contractual provisions trying to put into words every possible outcome of the deal. In that regard smart contracts could be way more efficient, since the code tends to be more straightforward. These contracts are transparent, automatic and trustless (we shall trust only the code, not the parties). Also, the enforcement of the agreement allocated on the blockchain takes relatively far less time that the paper counterparts.
Basically, smart contract operation scheme is fourfold: 1) we write a code using proper programming languages (Vyper, Rust, Solidity, etc.); 2) then we deploy on the blockchain where everybody could see it; 3) then certain actions (such as sending tokens or submitting data) work as a trigger; 4) lastly, when the conditions are met, the contract executes automatically.
In other words, smart contracts are like Coca-Cola vending machine: we put in the right money (input), choose a drink by pressing a button (trigger the condition) and the wending machine gives you the item (output) automatically, with no need for a shopkeeper.
Since smart contracts are based on computational programming, some bugs could always be a risk for lacking hundred percentage operational efficiency. If there is a chink in the code, it can be exploited (for example, DeFi hacks). Hence we are looking towards the complete compliance of the EU regulations in order to prudently and diligently manage the possible risks and disclose that to the authorities and general public. Also, mistakes in the smart contracts could be rather expensive, thus we are cooperating with the best and most experienced IT gurus whose ethical compass aligns with ours.
All in all, smart contracts are revolutionizing how we think about agreements, transactions and trust in the digital world. By running code on decentralized blockchains, they eliminate the need for intermediaries and enable secure, transparent and automated processes.
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