Smart contracts are gaining popularity as a form of ever-evolving agreement that businesses can rely on to execute their plans.
As they are kept on a blockchain and run when previously decided terms are met, they allow organisations to develop contractual agreements that change over time, as and when conditions are met, without the impracticality of having to continually review clauses and new contracts.
However, to fully understand the benefits of smart contracts, you need to know about the blockchain they operate from.
What are blockchains?
Blockchains can best be described as a distributed database which is shared across computer networks.
Blockchains hold information digitally and are most commonly associated with cryptoassets, such as cryptocurrency and NFTs.
Within cryptoassets, the blockchain maintains the records of transactions and provides a guarantee for users that their data is secure and credible.
Blockchains also eliminate the need for a third party to confirm transactions, which is part of the reason they are becoming so popular.
The information within a blockchain is collected in groups and they are known as blocks, which individually hold that information.
They have a specific amount of storage available but when that is full, they close and link to the block that was open previously and as a result form the chain of blocks or blockchain.
This makes blockchains a very clever and innovative way of storing data as all new information gets given a new block but is added to the chain so there is a way of tracing everything back to its origin.
Whereas databases usually have a table structure, blockchains are strung together, like a string of lights.
This means the data is set in stone when a block is filled, it is immediately added to the timeline.
Each block is also given a timestamp as soon as it is added to the chain so you can find data based on dates, thus confirming the validity of all other points in the chain.
Some blockchains are decentralised which means they are not controlled by one singular group or person and these types of blockchains are immutable – essentially meaning the data is irreversible and permanently recorded.
Ultimately using smart contracts via blockchains will give you an extremely secure way of storing data and having a permanent record of these, which cannot be amended once within the chain.
They also allow for certain processes to be mapped out in advance and set in stone, so that the contract evolves over time as and when certain events take place within the proposed timeline.
The next part of this series on smart contracts and blockchains will cover how smart contracts work.
For advice on these contracts, contact us today.