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Smart Contracts: Introduction

Today the vast majority of transactions — from small purchases in online shops to multi-million acquisitions in the real estate sector — are made using traditional contractual relations where the agents represented by certifying and financial organisations take a percentage for their services.

In other words, almost all money relations between two or more participants involve government or commercial parties. These commonly used centralised schemes were formed centuries ago. But today we have a critical mass of technologies that allow us to use a decentralised solution in the contractual relations — blockchain-based smart contracts.

The appearance of decentralised schemes is not hypothetical but a real event. The entertainment sphere (which is in serious need of new copyright compliance mechanisms), banking and financial sectors, logistics, real estate trading and healthcare will become the driving forces. In other words, the key pillars of the economy in many countries.

What decentralised solution are we talking about?

Let's imagine an everyday situation: two parties, whether individuals or companies, enter into a contract. One party undertakes to provide a product or service and the other undertakes to pay for it. There is always a risk that one of the parties will fail to fulfil its obligations. Either the purchaser will not receive the product or service (or it will be of poor quality), or this product or service will not be paid for (or will not be paid for in full). Risks have a negative impact on market development, require financial security, the involvement of agents in the contractual relations and the maintenance of an expensive infrastructure.

Smart contracts have no such disadvantages. With a certain assumption, they can be considered digital equivalents of paper contracts. Smart contracts exist in the blockchain environment: an electronic distributed ledger that is kept by every participant of the decentralised network. One of the most important advantages of this technology is that blockchain entries cannot be falsified.

The smart contract is an algorithm. It checks that all participants who signed the smart contract with cryptographic keys fulfilled the transaction conditions fixed in the code. When this happens, the smart contract automatically transfers money from one participant to the other. And such a transaction cannot be cancelled or falsified.

Sometimes, to check that the conditions are fulfilled, the smart contract requires information from the real, physical world. For this purpose, so called oracles are created. They are authorised smart contracts that transfer information from third party databases to usual smart contracts.

For example, a person purchases products from abroad and the transaction is made with a smart contract. It may include the condition that the seller will receive money for the purchase only when the products go through customs clearance. Using the oracle, the smart contract will receive information from the official customs service database. As a result, the contract will be fulfilled automatically, without the intervention of people.

This is just one of the many examples of using smart contracts. By using them, transactions in all kinds of industries can be made quickly and without any intermediaries. You don't have to worry that one of the parties will incur losses if the other party fails to fulfil its obligations.

But smart contracts, like any new technology, are not very convenient in their pure form. It is not a product that is ready to be used, for example, as a mobile app. The smart contract is a programme code and algorithm and it needs to be adapted to a specific task. In addition, the algorithm needs to be reliable and secure. It is clear that most ordinary people, as well as many small and medium businesses, do not know how to use smart contracts. There is no need to spend time and resources to create smart contracts and send them to the network when you have traditional proven instruments at your disposal. Although they have disadvantages, we got used to them.

Therefore, we created the Smartz platform to help users to overcome this barrier, to build a bridge from the common centralised solutions to decentralised ones. It is designed for end users as well as developers. Smartz can be compared with Google Play and App Store. Only instead of mobile apps, it contains decentralised ones (DApp), each of which consists of one or more smart contracts with a convenient managing web interface.

To work with DApp, you just need to choose a smart contract with an appropriate algorithm, set the required variables and, after sending it to the decentralised network (blockchain), you will get access to the smart contract management interface. You will not need any programming skills. Smartz offers smart contracts in the form of a ready-to-use product and is responsible for its performance. In other words, Smartz undertakes the task to provide the infrastructure required to move from common information systems to decentralised networks.

For the platform approach, the unified system includes:

  • a store with developed publication opportunities that encourage competition between smart contract developers;
  • an automated interface generator;
  • a management and monitoring console.

All this allows users to easily apply smart contracts for their needs, while companies can save a lot of money on the development, testing and implementing smart contracts into business processes.

This introductory article cannot cover the whole variety of topics connected with the role and prospects of blockchain and smart contracts in the modern economy. You can find more information about this and the purpose of Smartz in other articles of our reference documentation.