Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. They are designed to facilitate, verify, and enforce the negotiation or performance of a contract. Here's a closer look at how smart contracts work:
- The contract is created: The first step in the process of a smart contract is the creation of the contract itself. This involves defining the terms and conditions of the agreement, as well as the specific actions that will be taken based on the fulfillment or breach of those terms.
- The contract is deployed: Once the contract has been created, it is deployed on a blockchain platform, such as Ethereum. This allows the contract to be stored and accessed securely and transparently on the blockchain.
- The contract is triggered: The next step in the process of a smart contract is the triggering of the contract. This may involve the input of specific data or the occurrence of a specific event, such as the completion of a task or the passage of a certain amount of time.
- The contract is executed: Once the contract has been triggered, it is executed automatically according to the terms and conditions that have been written into the code. This may involve the transfer of assets, the execution of specific actions, or the payment of fees or penalties.
- The contract is enforced: The final step in the process of a smart contract is the enforcement of the contract. Because the contract is stored on the blockchain and the terms are written into code, it is difficult for the terms of the contract to be altered or disputed. This helps to ensure that the terms of the contract are carried out as intended.
Overall, smart contracts are a powerful and innovative tool that have the potential to streamline and automate a wide range of business processes. By defining the terms and conditions of an agreement in code and storing it on a secure and transparent blockchain platform, smart contracts can help to reduce the risk of disputes and facilitate the smooth execution of complex agreements.