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The development of the blockchain technology is slowly revolutionizing how people do various things. This technology is receiving a warm welcome in all sectors due to its ability to enhance service delivery through eliminating intermediaries. Also, the new advancement helps you to save time and improve your transaction security. With these benefits, blockchain is now a darling to both governmental and private organizations.

One of these benefits is the ability to offer a decentralized ledger that enables people to develop self-executed contracts or digital contracts using the blockchain technology.  The contracts can be transformed into computer codes, stored and executed through the blockchain network.  Are these contracts known as the smart contracts?

What is a smart contract?

By definition, a smart contract is where you exchange any property, money, share, or something with value in a free and transparent way without interference or presence of an intermediary. Nick Szabo, a renowned legal scholar, and computer cryptographer was the first person to develop the smart contract idea in 1993/94. The smart contracts act the same way the traditional contracts does, but they are administered and executed through the blockchain technology.

For a clear understanding, take it this way: you enter into a leasehold agreement with person A.

Definitely; the first step you will take is to approach a lawyer to functionalize and legitimize the contract. Also, the contract will have obligations for each party such as the issuance of receipts upon each payment and penalty execution if you exceed a specific payment date.

Using the blockchain technology, you can develop the contract inform of codes. You set the rules and obligations of each party on the public ledger. If one of the parties fails to fulfill their obligations, the blockchain executes the agreed action.

For instance, if person A fails to issue a receipt, then you will receive your refund upon the expiry of the set period. Good to note is that smart contract uses cryptographic codes to enforce a relationship between two parties while traditional contracts use the law as the enforcement approach.

The relationship between Ethereum and Smart contracts

As you might be aware, Ethereum is a decentralized platform that allows developers to run apps. In this essence, a developer can use the platform to develop a program using the Ether scripts. This ability enables developers to write smart contracts that can support an array of computational guidelines and instructions.

As such, Ethereum is a platform that uses blockchain technology in the creation of smart contracts. Also, the smart contracts are not limited to a given industry or purpose. Thus, you can use them for any area requiring a contract such as membership registration, managing insurance contracts, and storing application information.

Why smart contracts

Smart contracts have several benefits to you. Here are some:

a. Safety and security

The uses of Ethereum in the coding of the smart contract make it hard for hackers to inflate them. This ensures that your documents are always safe and without any fear of hacking or any other form of cybercrime attack.

b. Autonomy

Nothing is important to freedom or independence. With it, you decide what is right for you and the best way forward. Smart contracts offer you the freedom to agree without the reliance of a third party. Here, you decide between you and the other party and leave the execution ability to the blockchain.

c. Saves you money

Elimination of a third party means a saved coin in your pocket. As you know, intermediaries do not work for free.  You must offer them a commission which increases your contract expenses. However, the smart contract eliminates these parties, and so you save on their costs.

And that is all about Smart contracts and Ethereum.