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Smart Contract


Smart Contract

A self-executing contract in which the contractual terms and requirements are formulated into lines of code (script) directly. In crypto space, smart contracts are digital data stored on a blockchain for automatic execution upon fulfillment of predetermined terms and conditions.

These contracts automatically implement, control, or document actions and events related to a financial transaction once a set of conditions are met, involving the two transacting parties without the involvement of third parties or intermediaries. A smart contract may also be a computer program or a transaction protocol that is designed for automatic execution, among other relevant functions.

In blockchain technology, smart contracts are commonly used to facilitate, verify, and enforce the negotiation or execution of a contract or transaction as per the set rules. The main purpose or value proposition of such a technique is to facilitate financial transactions among blockchain users, in a direct way, and without the services of trusted intermediaries. A smart contract can automate processes like payments, transfers, and other financial transactions securely and in a time-effective manner, reducing popular types of risks, particularly the risk of fraud (embezzlement), and increasing efficiency of transactions by eliminating the need for old-style contract enforcement mechanisms as well as the reduction of malicious and accidental exceptions commonplace with traditional mechanisms.

Moreover, smart contracts are used in the crypto space, and for facilitating transactions in cryptocurrencies and similar types of assets. The digital contract was first introduced by Ethereum and is now generally perceived as a fundamental building block for decentralized finance (DeFi) and non-fungible token (NFT) applications. Additionally, the contract is signed and stored on a blockchain network that executes automatically when the contract’s terms and conditions (T&C) are met. These T&C are written in blockchain-specific programming languages such as Solidity.

A smart contract should not be confused with a smart legal contract (SLC), which is natively digital legal agreement for enforcement of underlying terms and conditions. The contract is embedded with embedded counterparty-neutral automation that execute operational tasks and enforce the set terms and conditions as defined by the parties. The terms and conditions are expressed and implemented in machine-readable code.



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