Blockchain Essentials by Ramchandra Sharad Mangrulkar & Pallavi Vijay Chavan

Author:Ramchandra Sharad Mangrulkar & Pallavi Vijay Chavan
Language: eng
Format: epub
ISBN: 9781484299753
Publisher: Apress

4.3 Smart Contracts

Smart contracts are computer programs that are stored on a blockchain-based platform and automatically implement portions of a contract. They can function independently or in conjunction with traditional text-based contracts, executing duties such as the transfer of funds between parties. On the blockchain, the code is replicated across multiple nodes, providing security and permanence. Smart contracts are written in programming languages such as Solidity and require execution parameters that are both specific and objective. Currently, they can only perform elementary duties, such as cryptocurrency transfers. As blockchain adoption increases, more complex smart contracts will be developed. However, many years will pass before code will be able to accommodate subjective legal criteria. Before they can be executed on certain blockchains, smart contracts must pay a transaction fee known as “gas.”

Currently, smart contracts are best adopted for automatically executing payment of funds upon the occurrence of a predetermined event or imposing monetary penalties based on objective conditions. They reduce the need for human intervention, escrow agents, and judicial systems, thereby reducing the cost of execution and enforcement. For example, they could automate payment transfers upon product delivery and streamline procure-to-pay processes. On the enforcement side, if payment is not received, they could disable access to Internet-connected assets.

Smart contracts are essential components of numerous blockchain applications; however, their enforceability as legal agreements under contract law in the United States highlights a number of legal and practical considerations that must be addressed prior to their widespread commercial application.

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