Smart contracts against scammers

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As soon as the technology of blockchain was appeared, it was massively introduced into business. Security of projects on blockchain is achieved through using of smart contracts. This feature of blockchain is a computer algorithm used to conclude a transaction and fulfill obligations between its participants.

The operating principle of smart contracts

The idea of ​​creating smart contracts was offered by the scientist Nick Sabo in 1994, but it was technically possible to realize it only in 2015. Concluding smart contracts, is used the principle of a banking cell, access to which is available only to holders of special keys. In smart contracts, this function performs a special code. Smart contract is recorded in the distributed ledger of blockchain. Thus, smart contracts allow the exchange of data without the involvement of intermediaries. At the conclusion of smart contracts, confidentiality is maintained between the participants. All transactions are traced and cannot be canceled. All this is explained the reliability of blockchain. The most famous blockchain is Ethereum network.

The second task of smart contracts is to ensure the fulfillment of the transaction’s terms. Due to the multi-signature function, the participants of the transaction can freeze cryptocurrency assets for a certain period of time.

To understand how it works, it is necessary to turn to the basics of the detachment. Concluding smart contract, information about the transaction is placed in a separate program chain, which combines all the messages about this transaction. These messages can be used to perform actions outside the chain. As a rule, they are used to enter and exit blockchain. Thus, if the terms of the smart contract are not followed, the cryptocurrency would be returned to the investor. Such principle is used in the conduct of ICO and other campaigns for crowdsale.

For the conclusion of smart contract, electronic signatures and electronic wallets are required, which ensure that the code is entered from blockchain and the data is exchanged during the operation. Smart contracts are differ in the degree of automation. For example, on cryptocurrency exchanges, the solutions are fully automated, but using blockchain to use cryptocurrency as a payment tool, you need a paper copy of the smart contract. This is necessary in order to confirm the legality of the transaction. As the technology is new, many legal aspects of using smart contracts still require regulations.

Smart contracts: an alternative to intermediaries in the future

The potential for use of smart contracts is extremely extensive from the conclusion of simple transactions, to use in government structures, for processing insurance policies, medical and other personal data. According to experts, in the long term all the proceedings will be transferred into blockchain. But for this, a suitable base should be created, because blockchain can be used to store only digital data.

Experts highly appreciate the potential for using blockchain in business. Thanks to smart contracts in the financial market, many processes requiring additional confirmation can be automated. The use of blockchain and smart contracts sets new rules for the market, makes it more personalized, because brokers and banks do not need to contact intermediaries in order to conclude transactions.

Disadvantages of smart contracts

At this stage, the technology is not brought to perfection. Data in smart contracts cannot be changed, and therefore require high accuracy entering data. In addition, there are problems with legislation in some European countries, where the "right to forget" rule is in effect, allowing the removal of data from registries at the request of the owner. Besides that, the issue of blockchain network security is relevant.