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Explore the Smart Contract Cycle within A Blockchain

Blockchain technology is redesigning our conventional business processes. A blockchain is a decentralized software that allows transactions without involvement from a third party. Moreover, a blockchain is immutable, so it is impossible to tamper with any recorded data. As a result, the pace of industrial activities has quickened. 

As contracts regulate our businesses, they are integral to any transaction. Hence, any company would want to carry out its agreements smoothly. Blockchain professional have developed smart contracts to automate the execution and completion of contracts. Not only do smart contracts reduce legal expenditure, but they also ensure complete transparency between the parties.

With the spread of blockchain education, smart contracts will fuel every minor and significant transaction. Let us look at the working and life cycle of smart contracts.

Table of Contents

  • Defining a Smart Contract
  • Working of a Smart Contract
  • Components of a Smart Contract
  • Life Cycle of a Smart Contract in Blockchain
  • Creation
  • Deployment or Freezing
  • Execution
  • Completion or Finalization
  • Features of a Smart Contract
  • Applications of Smart Contracts
  • Conclusion

Defining a Smart Contract

A smart contract (also known as a crypto contract) is a computerized transaction protocol to enact the terms of an agreement. In other words, it is a self-executing mechanism that controls the transfer of digital assets under specified conditions.

Blockchain professionals and developers digitally code smart contracts. Therefore, it is not possible to reverse the transactions.

Working of a Smart Contract

A digital contract that involves the security coding of blockchain is a smart contract. Moreover, it is decentralized, transparent, and inexpensive. The working of a smart contract is uncomplicated and straightforward. You can learn it from a basic blockchain course online. 

A smart contract utilizes IF-THEN logic, for example – 

  • IF Person A sends you an object, THEN Person A  will receive a sum (of crypto coins).
  •  IF you complete your work, THEN you will receive the digital assets mentioned in the agreement.

Components of a Smart Contract

We can dissect any smart contract into three components, which are as follows:

  • The arrangement of a contract between the parties.
  • Determining the necessary conditions for contractual obligation by both parties.
  • Execution of the contract.

Life Cycle of a Smart Contract in Blockchain

A smart contract in a blockchain consists of four major phases:

  • Creation

Firstly, the concerned parties negotiate obligations, prohibitions, and rights of the contract. Multiple discussions are involved in the creation process. Additionally, lawyers and counselors help the parties in drafting a preliminary contract.

When all parties reach a consensus about the contract’s overall goals and content, software engineers translate the agreement into a coded smart contract. Although blockchain professionals upload it to the ledger, anyone with a blockchain technology certification can help.

In the publication phase, nodes receive the contract as part of a transaction block. When the nodes confirm the block, the contract is available for implementation.

It is important to note that programmers cannot amend smart contracts as blockchains are inflexible. Hence, if the parties wish to update the terms after uploading, they would need to create a new contract altogether.

  • Deployment or Freezing

Immediately after creating and submitting the contract, the participating nodes confirm the agreement. The involved parties pay a fee in exchange for this service, and they can access the contract through blockchain. Further, the blockchain blocks their digital assets by freezing the corresponding digital wallets. However, the parties remain recognizable through their wallets.

  • Execution

After the freezing, the nodes read the contract. Moreover, they monitor and evaluate the contractual clauses. If the contractual conditions are met, the nodes will execute the procedure automatically.

The smart contract environment’s inference engine plays a significant role during execution. After a condition is triggered, the miners will validate and execute the statement. Experts trained in blockchain technology certification courses oversee the apt working of execution.

Ultimately, the blockchain stores all the committed transactions and the updated states.

  • Completion or Finalization

After execution, the blockchain updates the new states of all the concerned parties. Additionally, blockchain professionals put the information in a distributed ledger and confirm it using the consensus process. Simultaneously, digital assets transfer from one party to another in an unlocked state.

Features of a Smart Contract

  • Speed – Smart contracts work on coded software to automate business activities. As a result, they are quick to execute the contracts, thereby reducing the time required in the human maneuver of the contract. 
  • Accuracy – Since programmers have entered an accurate code, the execution is always error-free and instant. 
  • Backup facility – As the nodes maintain a shared ledger, the blockchain provides perfect backup in case of data loss.
  • Cost reduction – The parties can discuss and agree to a contract without the help of intermediaries. Moreover, the paperwork is minimal, and the parties spend no extra time correcting the errors. Hence, smart contracts save money by automating the processes.
  • Transparency – The participants exchange encrypted logs and cannot modify them for personal gain.
  • Safety – It is practically impossible for a hacker to tamper with the data as the transaction records are encrypted. Cryptography ensures that all the users’ data and assets are secure. 

Applications of Smart Contracts

The uses of smart contracts range from ordinary to complex. For instance, smart contracts can help the real estate sector by eliminating mediators. As a result, the involved parties can utilize the money elsewhere. Also, smart contracts can revive the music industry by tracking the ownership of recordings.

Additionally, people are learning the advantages of smart contracts through blockchain education and using the feature to track and maintain vehicles and manage their businesses.

Conclusion

Smart contracts can change our way of handling transactions. Not only are they inexpensive and easy to execute, but they also ensure transparency and security. Furthermore, they carry out the process accurately.

The four steps involved in the smart contract life cycle are creation, deployment, execution, and completion of the contract. Blockchain professionals make sure that the entire transaction occurs smoothly. Since the concept of developing smart contracts is uncomplicated, anyone from the IT sector can learn it in a blockchain course online.

Please visit BLOCKCHAIN COUNCIL to read more about smart contracts and related topics.

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