In 2020 and 2021, a series of blockchain applications and use cases such as decentralized Finance (defi), decentralized exchange (DEX) and non replaceable token (NFT) broke out in the market, attracting market attention and investment funds.
However, under radar, a different blockchain application continues to receive relatively little attention, but it is playing a crucial role, and this is the smart contract. There may be some confusion about what smart contract is, or some negative meanings related to smart contract (such as Dao hacker), but these are important tools to understand.
It’s not a contract. Although there will be other explanations on the name, smart contract is neither smart nor equivalent to contract in technology. Smart contract represents the programmable and executable code embedded in the underlying blockchain, or a part of the underlying blockchain. The end result may be the same, but it’s not the contract terms and written language, but the coding language and executable terms that drive the process.
Logic is the key. Although smart contracts are indeed not smart, it does not mean that there are no benefits in these applications, on the contrary. Smart contract essentially represents the attempt of coder and programmer to code and create some business logic in virtual environment. This kind of business logic can be simple payment automation and inventory confirmation, or complex management and execution of some stable currency.
The fuzziness of enforceability. For those who are more familiar with blockchain and encrypted assets, some things may look like old news, and legal authorization, enforceability, and other jurisdictional issues are still unclear. This may be better known for the inconsistency between accounting and financial reporting, but for smart contracts, there is the same problem. In the best case, the enforceability and differentiation of law are complex transactions. Adding coding language on the basis of legal agreement only magnifies these facts.
Control evolution. Ideally, integrating automation and digitization into executable protocols will make these protocols more secure and less vulnerable to fraud. To a certain extent, this is true. However, it is also true that in order for the smart contract to operate as advertised, it needs to be controlled around the smart contract itself. In other words, the organization needs to assess: 1) who has access to the programming language that creates the smart contract, 2) how such controls are updated or modified over time, and 3) how these controls take into account changing business conditions.
Flexibility. The last point that organizations should pay attention to is that, as in the whole business, business conditions change many times; smart contracts must be able to cope with changing conditions. This may take the form of more detailed programming at the beginning, or allowing employees to manually modify and change the contract itself. In either case, increasing this additional complexity will increase the cost and control considerations associated with the implementation of smart contracts.
Smart contracts play an important role in blockchain technology and in managing the fast-growing and differentiated encryption asset sector. These applications have the ability to automate, simplify and otherwise maximize the potential of blockchain technology, especially when it comes to enterprise adoption. With every rapid progress, there are always complex issues that organizations need to consider, as well as smart contracts and other tools. Nevertheless, blockchain and encryption applications increasingly rely on intrusive programs to operate effectively, and smart contracts seem to continue to exist and play an important role in the future.
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