How do ethereum smart contracts work?

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Most of us must have used the term ‘Smart Contracts’ in a blockchain discussion with colleagues or friends without completely realising the impact Smart Contracts can have on the entirety of the socio economic framework our society thrives on.

What are smart contracts

Quoting Wikipedia,

“A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible.”

The above definition basically states that smart contracts as the name suggests are contracts that can be programmed, verified without third parties, are trackable and are immutable unless explicitly mentioned in the contract.

There are numerous blockchain platforms that let you create custom smart contracts for varied use cases. Some of them are Ethereum, Hyperledger fabric, R3 Corda, Stellar, Achain, etc.

How do smart contracts work

We will now try to understand smart contracts right from its inculcation.

Smart Contracts were first introduced by cryptographer and Computer Scientist Nick Szabo in 1994. A rough idea of smart contracts could be understood by analysing vending machines. You select a particular snack and enter the appropriate amount into the machine, the snack then presents itself to you. Just like that, magic.

A Smart Contract needs several mathematical moving parts for it to function seamlessly.

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Smart contracts are stored in every computer on the blockchain network, all parties must execute this contract to get the same results, this way users can be sure the outcome is correct.
This contract is an agreement is coded and stored in the blockchain network on their participant database, this defines conditions for all parties using the contract when these are met actions are executed.
Smart contracts ensure autonomy, meaning if you make the contract you don’t need an intermediary, ruling out manipulation as the contract is managed automatically rather than individuals.
Encrypted documents are all stored in a shared ledger, ensuring trust as they cannot be lost or modified.
Smart contracts are all backed up as they are duplicated many times by everyone on the platform. Along with cryptography on the websites, this keeps your documents safe eliminating the possibility of hacking.
As documents aren’t manually processed, they are speedy as they use software codes to automate tasks enhancing effectiveness. Costs are reduced as they don't use an intermediary, increasing your savings. They also avoid errors by removing the need to manually fill out forms, increasing accuracy.

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