• Smart contract definition: Smart contracts are self-executing contracts defined by computer code, most recognizable in the form of applications built on platforms such as the Ethereum blockchain.
• Smart contracts vs. traditional contracts: When compared against traditional contracts, smart contracts have the advantage of being both immutable and trustless. This saves resources, money, and time, and it is a powerful tool with many potential applications.
• Limitations of smart contracts: Some limitations of smart contracts include: an inability to account for subjectivity, a high threshold for improvement based on community consensus, and the lack of direct way to incorporate real-world data in a trustless fashion.

A smart contract is a self-executing contract defined by a computer program, in which the terms and execution of the agreement are built into immutable code and recorded on a blockchain.

Traditionally, a contract is an agreement between two or more parties to exchange promises and/or services, and there are often multiple parts of this agreement. For instance, a promise, such as a monetary payment, can be exchanged for another promise or for a service, or a service can be exchanged for a service.

Additionally, there can be many terms of contracts that dictate the exchange, such as the timing of the exchange – is it immediate? does it have an expiration date? – and the circumstances in which the contract becomes void. These details are the reason why some of the most common contracts, such as ones outlining the terms of loans and employment, are so long.

In smart contracts, the word “smart” merely implies that this contract is carried out by computer programming code rather than on a piece of paper or in some other form.

The term “smart contract” – now ubiquitous in the 2020s – was coined in the 1990s by Nick Szabo, a lawyer and computer scientist who was one of the early proponents of cryptocurrencies. In a paper published in 1996, Szabo defined a smart contract as “a set of promises, specified in digital form, including the protocols within which the parties perform on the other promises.”

The promises of smart contracts are written in the form of “if-then” semantics, which is common in computer programming. The best real-world example of if-then functionality is the vending machine, which Nick Szabo first used to illustrate the operations of smart contracts. If you put $1 into the machine, then it dispenses a snack for you. The entire transaction is pre-determined by the machine’s programming without external influences (human or institutional). Smart contracts are designed to autonomously execute functions in the same way.

Isipin ang huling pagkakataong pumirma ka sa isang tradisyunal na kontrata. Ano ang kailangan bukod sa piraso ng papel at ang dalawang partido na pumirma sa kasunduan?

Ang mga abogado ay madalas na mahalaga, una ay isulat ang wika ng kontrata at pagkatapos ay upang matiyak na ito ay isinasagawa nang naaayon. Kung ang isang kontrata ay nilabag, madalas na kailangan mo ng isang hukom, isang silid ng hukuman, at iba pang mamahaling mapagkukunan. Sa malalaking palitan ng pananalapi gaya ng pagbili ng bahay, karaniwan nang gumamit ng escrow, na isang ikatlong partido na humahawak ng mga pondo hanggang sa matugunan ng magkabilang panig ang mga napagkasunduang kondisyon. 

Ang lahat ng mga tagapamagitan at mapagkukunang ito na kinakailangan upang gumawa ng mga umiiral na kasunduan ay may halaga, kasama ang tiwala na dapat mong ilagay sa mga institusyong ito upang maisagawa ang kanilang mga bahagi nang tapat. Dagdag pa, ang bawat mapagkukunang ginagamit sa mga setting na ito ay gumagamit din ng oras, ibig sabihin, ang mga kontrata ay maaaring tumagal ng mga araw o linggo upang maproseso.

Sa pangunahin, ang mga smart contract ay hindi nakadepende sa marami sa parehong mga pagpapalagay at kinakailangan salamat sa ilang mga tampok:

• Immutability – Kapag ang isang smart contract ay isinulat at naisakatuparan, hindi ito mababago, at sa gayon ay permanente. Dahil ang mga computer na nagpapatakbo ng blockchain, na kilala bilang mga node, ay nag-iimbak ng magkaparehong kopya ng kontrata, ang anumang pagbabago sa kontrata ay imposible nang walang pinagkasunduan sa network.
• Trustlessness – Ang bawat smart contract ay sapat din sa sarili, ibig sabihin, hindi ito umaasa sa iba pang mga salik tulad ng mga abogado at institusyong pampinansyal upang maisagawa ang mga tungkulin nito. Ang pag-alis ng panlabas na impluwensya ay nangangahulugan na ang parehong resulta ay maaaring asahan sa bawat oras, nang walang kinakailangang panlabas na tiwala. Bilang resulta, kahit na ang pinakamasalimuot na mga transaksyon ay maaaring gawin sa mga segundo o minuto kung saan mas magtatagal ang mga ito.

Tandaan, dahil inaalis ng mga smart contract ang mga middlemen, hindi mo kailangang magbayad, magtiwala, o maghintay para sa mga third party na isakatuparan ang mga ito, na ginagawa silang mas kaakit-akit na alternatibo sa mga tradisyonal na kontrata para sa ilan. 

Smart contracts are the heart and soul of blockchain technology. 

Bitcoin smart contracts are intended to operate on the Bitcoin blockchain, setting specific rules for transactions and recording them in the public ledger. 

Ethereum smart contracts are specifically built to support other smart contracts (otherwise known as programs or decentralized applications) that operate on top of its own blockchain. These applications are written in programming languages specifically designed to support contract writing, called Solidity and Vyper. 

Let’s take an Ethereum smart contract example using Golem (GNT), a platform that creates a marketplace for computing power. Golem’s smart contract allows anyone to request computing resources from the community for a fee. Once the network confirms the funds from the requester and the completion of the tasks from the provider, the conditions are met and the contract executes: the requester receives computing power from those offering their resources, and GNT is transferred automatically from them to the accounts that offered their services. If all of the predetermined conditions aren’t met, then the contract doesn’t execute.

Limitations of smart contracts:

• Subjectivity – The functionality of smart contracts is limited by what is written into its code. If there is any degree of subjectivity or need for flexibility in a contract, it becomes difficult to build into its design.
• High effort to change – If there are bugs or loopholes in the code, changing the contract requires significant work from the community and consensus agreement from the network’s nodes.
• Incorporating real-world data – Smart contracts often require the use of real-world data, such as knowing the value of the U.S. dollar, a stock price, or the location of a product being shipped across the world, to execute. While third parties often provide this information, oracle technology (like Chainlink or Band Protocol) works to bring this information into the blockchain using off-chain data. 

Kung handa ka nang gawin ang susunod na hakbang, i-click ang button sa ibaba upang mag-sign up para sa Kraken account at magsimulang bumili ng mga smart contract protocol ngayon!

Developers have just started to explore the depth of capabilities offered by the smart contracts that power blockchain technology. The uses for this technology are growing exponentially, and many can see the opportunities in new spaces where traditional contracts currently dictate transactions. Examples of the potential uses include: mortgages, digital identity management, supply chain logistics, stock market trading and securities, organ allocation/transplant lists, renting/leasing of property, and more.