Smart contracts are based on clear and transparent logic. A smart contract can be called an equivalent of a classic contract, put in a rigid framework of program code.
The latter is embedded in the blockchain chain, becoming an integral part of it with all the ensuing consequences. Note: despite the algorithmic framework, smart contracts based on Decimalchain, for example, are able to fully respond to internal and external calls, verifying compliance with the conditions prescribed in it and performing appropriate actions in case of their exact fulfillment.
Figuratively speaking, SC is a self-fulfilling process, and although the intellectual component in it is limited by the completeness of the Turing code, this is quite enough to perform an extensive list of tasks.
As long as SCs are implemented on the blockchain, their use is associated with certain disadvantages and inconveniences typical for the world of cryptocurrencies, but their pros significantly outweigh all disadvantages. Actually, it is due to this that we have the opportunity to observe the exponential growth of cryptocurrency platforms that support smart contracts, not to mention smart contracts themselves.
What are these advantages? We will try to make a detailed analysis of them from the point of view of all possible aspects of SC use.
The modern economy is highly centralized and regulated, even if we are talking about market relations. Everything here is based on contractual relationships, and they are quite complicated. The state does not necessarily act as a regulator, although the functions of the Central Bank are obvious: the control over compliance with contractual relations often falls on the shoulders of banks, insurance companies, and other similar structures.
Contractors of such relations can be companies, organizations, and individuals, but they are all obliged to comply with the terms of contracts/agreements, which are controlled by centralized structures.
Smart contracts operate on a similar principle: here, too, there is a set of rules that fully describes the functioning of the SC, with a single but important exception. This is the absence of a trusted person or a third party. Blockchain technology, on which smart contracts are based, involves the execution of decentralized and fully autonomous transactions. Thus, the mediation of banks, brokers, or lawyers becomes unnecessary since contractual relations are carried out automatically on the basis of input data provided by the participants of transactions and oracles. Achieving full autonomy promises many other advantages, which will be discussed below.
Regardless of the type of contractual transaction, in the classic paper version, a great deal of time is spent on its execution. On the part of the regulator, efforts are required to maintain appropriate databases and process incoming documentation, and this requires many hours of routine work executed by human resources. When using smart contracts, most of these processes are automated, which significantly increases the processing speed of the processes programmed in SC.
Expenses for intermediaries are a significant part of the cost item in the world of finance and at all levels. Blockchain technologies work in such a way that they do not require the direct participation of such intermediaries, although there are still minimal fees for securing transactions. But in general, the use of smart contracts allows you to save significant funds, depending on the platform used.
Manual maintenance of databases, their analysis, processing, and filling out documentation is an inexhaustible source of errors that are usually blamed on the human factor. The program code, operating in accordance with the algorithm embedded in it, does not allow such errors. And although the process cannot be called completely autonomous as some input data still needs to be entered, in general, it is possible to minimize the number of such errors.
Storing all data on completed transactions in a decentralized, perfectly protected from hacking registry is a guarantee that the terms of the contract will not be changed, and information about transactions will be stored in the blockchain forever. And each participant has the opportunity to view the results of such operations. Decentralization implies that attempts to delete or change the registry are doomed to failure since copies are stored on a large number of servers and are constantly checked for disagreements, which are promptly eliminated. A node that has allowed discrepancies is punished.
Since any smart contract is a component of blockchain, the rules similar to the ones applied for other types of records work here as well. This means that code of contract stored on a block is encrypted via powerful cryptographic tools that exclude hacking. And deals are the same as transactions and are also securely protected. The blockchain operates within a decentralized peer-to-peer network, and, as we have already noted, this guarantees its integrity and the correctness of entering new data.
Of course, hacking attempts are being made, and some of them are even successful, but here we are talking more about sociology and the human factor – it is no way possible to decrypt a hash in an acceptable time.
Finally, when using SCs on the blockchain, you are free from manipulations with contract terms. They cannot be changed if this feature is not provided by SC programming code. In the latter case, the conditions for changing the contract clauses are negotiated in advance, and they are known to all participants. In other words, the immutability of the contract, despite the absence of any legal norms, is guaranteed to be higher than that of conventional contractual relations.
This term is usually understood as mistakes made when working with large arrays of documents. In fact, the problem is much bigger. Thus, today models using expert opinion have become widespread – they are used in a variety of fields.
Expert opinions need to be processed. This is usually handled by a facilitator (a more understandable name is a knowledge engineer). He has to work with interviewees of different intellectual levels, which creates prerequisites for attempts to influence him in order to make a decision in favor of a particular expert. Such subjectivity is impossible if the program performs the role of facilitator, and it is impossible to persuade, bribe, or intimidate. And here, we can give as many similar examples as we want.
Software facilitator used in smart contracts has its own name – oracle. It is he who takes on the responsibilities of obtaining external trigger data that are necessary to track the conditions of compliance with the contract. If these conditions are met, the oracle launches the corresponding block of the algorithm for execution.
Surely, the source of obtaining external data should be reliable, and here the oracle also has a certain advantage: it works faster and more accurately than a person.
As you can see, the use of SCs on decentralized peer-to-peer networks provides a number of significant advantages concerning almost all aspects in almost any field of activity. It is not surprising that the number of such startups is rapidly increasing, and one of them is the Decimal community, which already offers several projects using smart contracts. And the community is working on a number of new ones, involving many industries directly or indirectly related to Decimal tokenomics.