Smart contracts are computer programs that execute tasks based on mathematical algorithms and instructions encoded in code.
Nick Sabo, an American cryptographer, first introduced the concept of smart contracts in 1996. They act as a set of rules that are automated and reduce human control of platforms. By facilitating decentralized digital transactions, they enable participants to accomplish tasks based on a consensus about the rules that govern the network. Transactions occur peer-to-peer, without the need for a single party to control or direct them. This results in cost and time savings for individuals and organizations.
A smart contract is a set of promises, specified in digital form, including protocols within which the parties perform on these promises.
- Nick Szabo
How Smart Contracts Work
Smart contracts are computer codes that determine the outcomes of a contract based on pre-agreed conditions. They serve to digitalize traditional contracts, allowing for automated value exchange, such as digital assets, money, and real estate, among others, in a distributed network. Smart contracts in a blockchain network are intricate and enforce rules that enable multiple parties to approve a transaction. They facilitate multiple signature protocols and are a crucial component of decentralized applications (dApps), working together to enforce rules that enable complex transactions.
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Market Trends:
The global smart contract market size is currently around US$315.1 million and is projected to reach $1.46 billion by 2028.
Most blockchain-based smart contracts are built on Ethereum, where over 3000 decentralized applications are hosted currently.
The global Smart Contracts market size is projected to reach USD 345.4 Million by 2026, from USD 106.7 Million in 2019, at a CAGR of 18.1% during the forecast period 2021-2026.
What are the common use cases?
DeFi
NFTs
Financial data recording
Health care
Insurance
Logistic
Real estate
Why smart contracts are important?
Smart contracts are gaining importance due to their potential to increase efficiency and reduce costs in various industries. The technology is expected to become more widely used as it continues to develop and mature.
One reason for this is that smart contracts are cost-effective, as they can replace intermediaries in cases where agreement terms can be observed publicly and digitally. For example, in legal processes, they can replace lawyers by automating manual processes related to torts, property, civil procedure, evidence or contract analysis.
Furthermore, they are more secure due to blockchain technology's decentralized structure, which makes it more difficult for hackers to manipulate transactions. While the technology is not completely foolproof, it does make it harder for malicious actors to carry out attacks.
Finally, smart contracts are more accurate since they are written as computer code, reducing the likelihood of errors or mistakes made during the contract preparation process by human parties.
Reminder: None of this is financial advice. Do your own research.