Blockchain Security Basics: What Is a Smart Contract?

Blockchain Security Basics: What Is a Smart Contract

Are you looking for a way to reduce the financial, administrative, and time costs of the agreement? The solution is simple – Smart Contracts. And we’ll prove it to you!

In this article you will find the answers to the following questions:

1) What is a smart contract?

2) What problems does a smart contract solve?

3) What is a smart contract audit?

 

What is a smart contract?

The term smart contract was first coined by Nick Szabo in 1996, long before bitcoin appeared. By that, he meant electronic trading protocols between two parties, including a protocol for the execution of those obligations within the Internet. After a while, smart contracts began to gain popularity. The Ethereum blockchain alone recorded about 2M deals for 2020.

 

ethereum

 

In a nutshell, smart contracts are digital contracts in the form of sophisticated computer code. They facilitate verification, control, and execution of all agreements. Moreover, they are stored inside a blockchain. If you use smart contracts to transfer cryptocurrency, in that case, no one is manipulating the funds.

Here’s a great example for you to understand the main principle of how smart contracts work.

 

Example

Imagine a situation where you want to invest in a startup. The creators are unfamiliar (or anonymous) and can be reached only through the Internet. You are satisfied with their business goals and business plan (whitepaper), but you aren’t sure whether the product will be in demand. They need your investment – you need results. Both of you decide to make a smart contract, under the terms of which, as soon as 1 unit of product is sold, the startup will receive your investment for continued growth. Once that happens, the contract will do the exchange itself. So you don’t have to waste your time.

This example is a brief description of how exactly it works. However, it shows one of the main advantages of a smart contract – saving time. Also, smart contracts have many other useful features that can solve numerous problems.

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What problems does a smart contract solve?

Let’s look in detail at which features of smart contracts can solve the specific problems. First of all, using smart contracts can grant you:

smart contracts can grant you

 

Autonomy

Autonomy helps solve the problem of choosing a lawyer, broker, or other intermediaries. It is just unnecessary. Thus eliminating the danger of manipulation by a third party because everything is managed by an automated network.

 

Backup

Since all documents are encrypted and stored in a general ledger, they cannot be lost and cannot disappear. Moreover, they are repeatedly duplicated

 

Efficiency

In plus time savings, smart contracts save you money. You have to pay for the translation, but it is a relatively small price compared to the tax

 

Trust

All the conditions of the contract are written in the beginning and are not changeable. So you can be sure that no one has changed the clauses of the contract. Everything will be fulfilled as it should be.

 

Accuracy

With smart contracts, you can avoid errors that occur when you fill out the form manually.

 

Safety

All contracts are well encrypted so that even the most experienced and talented hackers are bound to fail to penetrate the document.

 

Speed

Automation speeds up the process, so there’s no need for manual processing of documents.

 

These features back up the success of smart contracts. Moreover, fintech contracts are much stronger in the form of smart contracts.

But it is not that easy to develop a fully functional smart contract. In order to create a proper one, a specialist must go through the contract and conduct an audit. In practice, it is used to make sure that everything is properly filled with no bugs in the code.

 

What is a smart contract audit?

Smart contract audit is the process of scanning for vulnerabilities, omissions, and errors in the contract code.

smart contract audit

It is better to be checked by developers from specialized smart contract audit companies because they possess enough expertise to make it nice and clear. It is important to review the code before signing it because after that, it cannot be changed and the absence of a smart contract audit can lead to massive monetary losses or fraud.

 

The main benefits of providing smart contract audits:

the main benefits of providing smart cotract audits

 

Safety

The probability of hacking into a smart contract is extremely low if your contract has been checked by experts. An audit makes it literally impenetrable.

 

Preserving investments

The audit will give more confidence to investors and protects their interests

 

Good reputation

A company that was hacked by a hacker instantly loses credibility. Your partners and clients must be confident in the security of their data and funds. When they are confident in you they will not only continue working with you but also recommend you to other investors.

 

To conduct a smart contract audit at the highest level of quality, you need to select the best experts who can do it with speed and accuracy. We are happy to help you by using our diverse network of cybersecurity experts that also feature smart contract auditors.

 

Let’s get in touch and make sure that your code is free of bugs and errors!

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