Benefits of Smart Contracts

Accuracy, Speed, and Efficiency
The contract is immediately executed when a condition is met. Because smart contracts are digital and automated, there is no paperwork to deal with, and no time was spent correcting errors that can occur when filling out documentation by hand.

Trust and Transparency
There’s no need to worry about information being tampered with for personal gain because there’s no third party engaged and encrypted transaction logs are exchanged among participants.

Security
Because blockchain transaction records are encrypted, they are extremely difficult to hack. Furthermore, because each entry on a distributed ledger is linked to the entries before and after it, hackers would have to change the entire chain to change a single record.

Savings
Smart contracts eliminate the need for intermediaries to conduct transactions, as well as the time delays and fees that come with them.

How Do Smart Contracts Work?

A smart contract is a sort of program that encodes business logic and operates on a dedicated virtual machine embedded in a blockchain or other distributed ledger.
Step 1:

Business teams collaborate with developers to define their criteria for the smart contract’s desired behavior in response to certain events or circumstances.

Step 2:

Conditions such as payment authorization, shipment receipt, or a utility meter reading threshold are examples of simple events.

Step 3:

More complex operations, such as determining the value of a derivative financial instrument, or automatically releasing an insurance payment, might be encoded using more sophisticated logic.

Step 4:

The developers then use a smart contract writing platform to create and test the logic. After the application is written, it is sent to a separate team for security testing.

Step 5:

An internal expert or a company that specializes in vetting smart contract security could be used.

Step 6:

The contract is then deployed on an existing blockchain or other distributed ledger infrastructure once it has been authorized.

Step 7:

The smart contract is configured to listen for event updates from an “oracle”, which is effectively a cryptographically secure streaming data source, once it has been deployed.

Step 8:

Once it obtains the necessary combination of events from one or more oracles, the smart contract executes.

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