The future powered by smart contracts is bright (and benefits you).

We are all familiar with contracts in the traditional sense, in which two or more parties make a legally enforceable promise with one another, along with definitions, conditions, and other clauses.

Ever since the first recorded use of contracts in the 14th century, they have remained pretty much the same for centuries, until the advent of blockchain, and Ethereum, which was the first protocol that supported a new breed of smart contracts and unlocked a whole world of possibilities.

In this article, we’ll explain what smart contracts are, how they work, as well as current and future applications of the technology in various industries.

The smart home concept works such that certain actions become triggers for the way technology behaves within your home – such as turning on lights, sounding the alarm, or sending a notification – when a particular condition is met. These conditions could be scheduled time elapsing, a water leak being detected by a sensor, or by someone pressing a doorbell, button, or appliance.

In the same way, a smart contract is a piece of code that can trigger actions automatically, according to the terms of the contract. Smart contracts live on the blockchain as a transaction and are thus irrevocable and immutable once verified and initiated.

Inheriting blockchain principles, smart contracts are transparent, decentralised, trustless, and autonomous, which eliminates the need to rely on intermediaries to arbitrate and enforce the terms of the contract. This means that smart contracts have the potential to increase the speed, reliability and cost-effectiveness (and most importantly, trust) of contractual agreements.

Let's talk about how loans work, and how these attributes of smart contracts can make a huge difference in our current financial system.

Traditionally, the administration of loans require multiple parties, especially when repayment lapses and there is a need to seize, valuate, and then liquidate pledged collaterals. These overheads are priced into the cost of offering loans.

With smart contracts, borrowers can use cryptocurrencies they hold as collateral for loans they wish to take. If repayment is not received within a certain time period, or if the value of collateral falls below the value of the loan, it can automatically be sold in accordance with the terms of the smart contract. Thus, smart contracts can simultaneously lower the risks undertaken by lenders while lowering costs for borrowers.

Ready to go further? Check out the rest of the article here and learn more about DeZy.