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As we all know, a contract is an agreement reached by two or more parties on a certain event. Generally speaking, a contract can stipulate the rights and obligations of both parties. The initial form of the contract was just a verbal agreement, so its performance depended entirely on mutual trust and credibility. Later, it was a legally binding paper contract. Today, a paperless or electronic contract has emerged. , which is the smart contract we introduce to you today. We must know that the rise of smart contracts is closely linked to the development of blockchain, so what is the significance of this smart contract? Let the editor of the currency circle briefly analyze the meaning of smart contracts for everyone.

 What is the significance of smart contracts?

Smart contracts are the foundation of blockchain platforms. With smart contracts, rules can be applied securely when processing transactions. They can be used to automate verification steps, encoding conditions that used to be included in signed physical contracts.

To build a smart contract, participants in a blockchain platform need to negotiate how transactions and their data will be represented, as well as the rules that govern those transactions. This agreement involves articulating those rules accurately, exploring all possible exceptions, and defining a framework for resolving disputes. This is typically an iterative process involving developers and business stakeholders.

The process also includes reviewing the rules, registering the agreement between the parties, testing the rules on transaction data, simulating scenarios to understand the business impact of the rules, and storing them in a secure and transparent manner. Additionally, attention must be paid to data models and the business domain models they represent. The parties must also define how the rules will be governed: who can define them, who can deploy them, and the process for changing them.

Smart contracts deal with value, so it’s crucial to use the right tools and practices to develop secure, transparent and trustworthy logic - all steps are automated within the platform to speed up transactions and realize the potential of automation.

 How do smart contracts work?

Smart contracts represent computer protocols, or simply, pieces of code that are basic technical elements. They are used to specify all agreement conditions reached between parties to a blockchain transaction. Once these conditions are met, the smart contract will automatically proceed with the transaction.

A blockchain-based system allows its participants to reduce intermediaries and excessive paperwork because it relies on a public ledger where all transactions can be verified by any interested party. The core requirement here is to describe all protocol conditions through mathematical rules using a suitable programming language.

Blockchain represents a distributed network of nodes, each of which stores information about all transactions. To reverse a transaction or double spend, more than 50% of all these nodes must be controlled.

Assuming a person wants to initiate a smart contract, they need to download special software and generate a public key that is published in the system. Subsequently, a start message should be sent and the node will receive it. When the event established by the smart contract is completed, the code will be executed.

For example, if certain requirements are met (a certain amount of money is paid), the vending machine automatically delivers the ordered items to the buyer. Smart contracts work on the same principle. Smart contract use cases are variable and cover countless opportunities. They have the potential to become powerful tools in many areas of human activity.

The above content is the detailed elaboration of the editor of the currency circle on the meaning of smart contracts. In fact, if you open your eyes, smart contracts are not only suitable for cryptocurrency transactions, they can play a role in daily tasks such as financial services and the Internet of Things, and it is more practical than anyone imagined. In the Internet of Things, smart contracts can add Internet functions to daily items in the home, and can also help users achieve distributed and trusted access control to the Internet of Things system. In addition, smart contracts can make the execution of contracts very convenient. The transparency and immutability of smart contracts also enhance the trust of both parties.