What is Smart Contract and how it relates to Blockchain?
In today’s world we always see a third party intermediary that stands between two or multiple parties for giving authorisation and confirmation the terms and conditions of the transaction. The third parties could be bank, government or any other intermediary.
In this model, it takes time to execute the transaction as permission of central authority is involved. This is called centralised model. Blockchain Technology is based on decentralised model wherein trusted parties conduct transaction with other without having any central approving authority. This model implemented based on smart contract. Smart contract is a computer program stored inside a blockchain. The role of smart contract is to negotiate the terms of the agreement and verification of transaction. With the smart contract, even unknown parties in a blockchain can trust with each other.
A smart contract is similar to a contract in the physical world, but it’s digital and is represented by a tiny computer program stored inside a blockchain. More specifically, a smart contract is a piece of software that stores rules for negotiating the terms of an agreement, automatically verifies fulfillment, and then executes the agreed terms. Trusted third parties can be replaced with smart contract and smart contract is more trusted than third parties as no one can tamper the smart contract it is immutable. Smart contract is verified and trusted by the blockchain network. A smart contract is a program, or more simply put, code. The code behind a smart contract contains specific terms that are executed when triggered by specific agreed events.
Bitcoin was the first to support basic smart contracts wherein network can transfer value from one person to another. The network of nodes will only validate transactions if certain conditions are met. Smart contract works when a required number of people agree in a network. It manages and vefies agreement between user e.g. rent agreement between owner and tenant. It also stores information.