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You get a receipt which is held in our virtual contract I give you the digital entry key which comes to you by a specified date. You can do this through the blockchain by paying in cryptocurrency. If you are looking for a more detailed walkthrough of smart contracts please check out our blockchain courses on smart contracts.Īs Vitalik Buterin, the 22-year-old programmer of ethereum, explained it at a DC Blockchain Summit, in a smart contract approach, an asset or currency is transferred into a program “and the program runs this code and at some point it automatically validates a condition and it automatically determines whether the asset should go to one person or back to the other person, or whether it should be immediately refunded to the person who sent it or some combination thereof.”In the meantime, the decentralized ledger also stores and replicates the document which gives it a certain security and immutability. More so, smart contracts not only define the rules and penalties around an agreement in the same way that a traditional contract does, but also automatically enforce those obligations. ledger), and your escrow, driver’s license, or whatever drops into your account. With smart contracts, you simply drop a bitcoin into the vending machine (i.e. Ordinarily, you would go to a lawyer or a notary, pay them, and wait while you get the document. The best way to describe smart contracts is to compare the technology to a vending machine. Smart contracts help you exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman. This would also result in ledger feedback such as transferring money and receiving the product or service.

In this format, contracts could be converted to computer code, stored and replicated on the system and supervised by the network of computers that run the blockchain.

In 1994, Nick Szabo, a legal scholar, and cryptographer realized that the decentralized ledger could be used for smart contracts, otherwise called self-executing contracts, blockchain contracts, or digital contracts.