Smart contracts are regarded as a trend-setting technology with which bureaucratic structures could be reduced. But what are smart contracts anyway?
Future technology Smart Contracts
The future of blockchain technology, which underlies all crypto currencies, can be located elsewhere. In recent months, large financial institutions have also shown increasing interest in blockchains. Not because they want to bring their own crypto currencies onto the market, but because of other blockchain-based technologies – above all Smart Contracts.
In Smart Contracts, a contractual provision is written down as a code that follows a conditional logic, i.e. they follow an “if then” pattern: if certain conditions are met, a certain contractual clause automatically comes into force. While usually third parties, such as lawyers, guarantee that a contract is adhered to, Smart Contracts’ technology ensures that the contract is adhered to – no intermediary institution needs to be intermediated to ensure trust between the contracting parties.
Advocates of Smart Contracts hope that the technology will facilitate business transactions and contract processing and increase contractual security. However, there is still disagreement about how exactly Smart Contracts should be technically implemented.
At present, Blockchain Ethereum in particular has emerged as a platform for Smart Contracts. This is primarily because the oldest and largest blockchain Bitcoin is not suitable for the use of Smart Contracts, because it was written in a program language that is not Turing complete.
The Blockchain Ethereum serves on the one hand as a platform for the crypto currency Ether, on the other hand Smart Contracts can be created, managed and executed via the Blockchain. In Ethereum, Smart Contracts exist as accounts that are similar to those of the user (the user accounts), but are not controlled by a private key, but by the code contained in them.
You can communicate with these Smart Contracts like with any other account, but the contract itself cannot be changed once it has been created. On the one hand, this makes it immune to external hacker attacks, as long as it contains no errors. On the other hand, no error in the code can be subsequently changed. If the contract is faulty, large financial losses may therefore be incurred if a security gap is exploited.