How would you like to have contracts that are secure, less expensive, unchangeable and faster to implement?
Smart contracts help you in a variety of ways, with money exchange and other areas of value. Because they are done with mathematics, you avoid human problems —- and cost.
A smart contract is like a vending machine. I particularly like the more modern versions we see today where you put in dollar bills of a select amount, say $10, then a robotic arm slides over to your selection, wraps its sci-fi hands around your selection and politely (you didn’t know robots could be polite, did you?) leaves it where you can open a door and retrieve your purchase. Oh, and it also politely gives you the correct amount of change in most cases.
A smart contract is much like a vending machine, but based on the immutable, mathematically-based system call blockchain. This means you’re trusting mathematics, not a human being.
A smart contract has a lot of similarities with my ideal polite robotic vending machine. Operation is automatic and based on programmed steps and potentialities.
How it works
Ethereum is the digital currency most often associated with smart contracts, although it doesn’t have to be the only tool. The way a smart contract works is that the algorithm built into the system makes sure that all parties involved comply with pre-established rules. “A” must provide X, Y, and Z services or products. “B” must pay a select amount of digital currency in a given form (think Bitcoin, Ethereum, Dash, whatever). It also has built-in mechanisms to check that all vital matters related to the transaction are completed.
All parties can be assured that privacy is maintained and only the details of the transaction, not the parties involved, will be distributed on a blockchain that is publicly viewable. That is part of the magic of cryptocurrencies and smart contracts.
Where the benefits exist
One of the biggest advantages is that you eliminate those in the middle. Eliminating “the middle man” has changed markets throughout history. Now we’re eliminating the human element and trusting in something far more reliable —- mathematics.