How Smart Contracts Work?
Tags: blockchain, smartcontracts
Published: 2018-01-31 12:46:03

---
title: "How Smart Contracts Work?"
published: true
tags: Blockchain, smart contracts
canonical_url: https://perfectial.com/blog/smart-contracts-and-industries-they-will-affect/
---

Amazon disrupted the retail industry. Uber rendered taxies obsolete and Airbnb, the world’s leading online property marketplace, replaced hotels.

Now, the original disruptors might find themselves in danger too. There’s a new technology emerging – the blockchain-powered smart contracts – that has a potential to take over what is now their place.

## [What are Smart Contracts?](https://perfectial.com/blog/smart-contracts-and-industries-they-will-affect/)

![What are Smart Contracts?](https://perfectial.com/wp-content/uploads/2017/10/img1-1.jpg "What are Smart Contracts?")

Smart contracts are something many in the tech world have been dreaming of since the nineties. Nick Szabo, the computer scientist who first described the concept in 1996 (and also coined the phrase), defined them as:

_“Computerised transaction protocols that execute the terms of a contract. The general objectives are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement), minimise exceptions both malicious and accidental, and minimise the need for trusted intermediaries. Related economic goals include lowering fraud loss, arbitrations and enforcement costs, and other transaction costs.”_

20 years later, the technology he had envisioned was brought to life. The programmable contracts which, following Nick’s idea, combine procedures of advanced contract law with the protocols used in online commerce, can now be implemented easily on the distributed ledger systems otherwise known as blockchains. Here at Perfectial, we are using smart contracts to incentivize employees and boost workplace productivity ([Perfectial Token](https://perfectial.com/cases/token/)).

## How do Smart Contracts Work?

Essentially, smart contracts are blocks of code that can self-execute certain functions, with certain parameters, when predefined criteria are met. They are activated, usually, by someone sending a transaction to their address on a blockchain and, as of now, they are being utilized primarily on the network called Ethereum.

To explain clearly how a smart contract functions, people often compare it to a vending machine.

That familiar box in your office, which resembles a fridge, is programmed to take your money and disperse a product once you push an appropriate button. To get the machine going, you feed it cash and, afterward, an internal detection algorithm, which these boxes all have installed in them, determines whether the bills (or coins) you’ve put into the money slot are fake or not.

Vending machines, being an old and familiar technology, are impressive to no one. But it’s the core principle they operate by, their ability to “execute simple agreements”, that was an inspiration behind Nick Szabo’s smart contract idea.


If you want to learn more about smart contracts and the substantial opportunities they can bring to your business, please contact our expert.

The post [How Smart Contracts Work and What Industries They are Most Likely to Affect](https://perfectial.com/blog/smart-contracts-and-industries-they-will-affect/) appeared first on [Software Development Company Perfectial](https://perfectial.com).