What is a smart contract in blockchain?

A smart contract is a self-executing agreement with the terms directly written into code. It automatically enforces and executes contract terms when predefined conditions are met, thereby removing the need for intermediaries. Smart contracts are stored and executed on a blockchain to ensuring transparency and immutability.

How do smart contracts differ from traditional contracts?

Smart contracts operate automatically once conditions are met. They don't require manual intervention or third-party enforcement. In contrast, traditional contracts rely on human oversight and legal systems for execution and enforcement. Smart contracts use blockchain technology for trust and security, whereas traditional contracts depend on external legal authorities.

What are some real-world applications of smart contracts?

Smart contracts are used in various sectors like finance for automating transactions, real estate for managing property transfers, and supply chain management for ensuring product authenticity. They enable faster, more secure processes in industries like insurance, healthcare, and gaming. Blockchain-based applications such as decentralized finance (DeFi) also heavily rely on smart contracts.

Are smart contracts legally binding?

Smart contracts can be legally binding in jurisdictions that recognize electronic agreements, though their enforceability may vary depending on local laws. While they provide automated execution, legal recognition depends on whether traditional courts accept the blockchain as proof of compliance. Some countries have adapted their legal frameworks to accommodate smart contracts.

What risks are associated with using smart contracts?

Smart contracts are vulnerable to coding errors or vulnerabilities that can lead to unintended consequences or exploits. Security risks such as hacking, where attackers manipulate contract code or gain unauthorized access, are significant concerns. Additionally, legal ambiguity and the lack of clear regulation may create challenges in enforcing smart contract terms.