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A smart contract is a computer protocol that facilities the transfer of digital assets between parties under the agreed-upon stipulations or terms. It is similar to a traditional contract in most ways including definition of rules and penalties around the agreement except for the fact that it can also enforce the agreed-upon obligations automatically. With blockchain technologies and bitcoin adoption, smart contracts are becoming popular in usage.
A smart contract is also known as a crypto contract.
Modern digital platforms and applications have helped in making the adoption of smart contracts easier. A smart contract automatically enforces the conditions by taking the information in the contract as input and assigning values to these inputs. These values then help in execution of required actions under contractual clauses. Smart contracts are mostly stored on blockchain technology due to the security and immutability of the technology. Smart contracts which are blockchain based are visible to all users of the specific blockchain.
The potential of smart contracts lies in the fact that they could simplify and automate routine as well as repetitive processes for which customers pay highly. They also have the ability to control behavior which is highly beneficial to enforce compliance. Smart contracts are considered complex, with their capabilities extending beyond simple transfer of assets and could be used in situations such as legal processes, crowdfunding agreements and insurance processes. Compared to traditional contract laws, smart contracts can provide superior security measures and also cause a significant reduction in transaction costs, especially related to contracting.