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What is Smart Contract on Blockchain?

February 2, 2021

Smart Contract

A Smart Contract is a computer code stored on a blockchain and execute automatically when terms and conditions fulfilled. It works under a specific set of conditions that users consent to. When user conditions are fulfilled, the agreement's terms are automatically run.

Let's say; a tenant wants to rent an apartment using a smart contract. When the tenant pays the security deposit, the landlord gives the tenant the apartment's security door code. Both the tenant and the landlord consent to some terms and conditions while signing the contract. The landlord automatically exchanges the door code with a tenant under the agreement rules. If the landlord does not provide the code to a tenant on the predetermined lease date, the smart contract refunds the security deposit. This scenario eliminates the fees and processes typically associated with using a notary, third-party mediator, or attornies.

It is a self-executing contract written into lines of code in which the terms and conditions mentioned for buyer and seller. In business collaborations, the smart contracts are beneficial more, typically used to enforce some agreement so that all participants can be sure of the outcome without an intermediary's involvement. A Daisy Smart Contract is also safe for participants and created for the trading purposes.

How do smart contract work?

Smart contracts works on some predetermined terms or clause "if/when…then…" statements written into code on a blockchain. When predetermined conditions have been completed and verified, the action executes the final stage. When the transaction completes, the blockchain is automatically updated.

Let's see how the smart contract works with an example. Suppose Buyer B wants to buy something from Seller A through the smart contract, he/she orders the product and puts money in an account. Seller A will use another Shipper to deliver the product to the buyer. When Buyer B receives its product, the money will automatically be transferred to Seller A and Shipper. If Buyer B doesn't receive their product on the expected delivery date, the money will be returned to the buyer. All this is done automatically.

There can be many conditions within a smart contract as needed to satisfy both the parties. This contract ensures the parties that the task will be completed satisfactorily. To establish the smart contract terms and conditions, all the possible exceptions explored. Determines how transactions and their data are represented and define a framework for resolving disputes. It forms with the involvement of both developers and business stakeholders.

Advantages of Smart Contract

 Following are the advantages of smart contracts with blockchain.

  • Speed and accuracy: Smart contracts are written in a code and runs automatically, so you won't have to correct the errors manually. 
  • Trust: It automatically executes transactions under predetermined terms, and the records of those transactions shared across both the parties. Thus, there is no risk whether any party has altered the information.
  • Security: Transaction records are in encryption form, making it difficult to hard. Because each record is connected to previous records, the whole code needs to be changed for hacking.
  • Savings: It removes any intermediaries' need because parties can trust the visible data and the technology to execute the transaction properly. Thus reduces the cost of the notary or any legal activities.