Using Smart Contracts with Bitcoin
A smart contract is autonomous software that can make financial decisions. The blockchain world is abuzz about smart contracts because they’re both amazing and terrifying in their implications for how the world economy operates.
In simple terms, a smart contract is a written contract that has been translated into code and build as complex if-then statements. The contract can self-verify that conditions have been met to execute the contract. It does this by pulling trusted data from outside sources. Smart contracts can also self-execute by releasing payment data or other types of data. They can be built around many different types of ideas and do not need to be financial in nature. Smart contracts can do all this while remaining tamper resistant from outside control.
Blockchain technology allowed smart contracts to come into existence because smart contracts offer the permanence and corrupt resistances that were once provided only by paper, ink, and a trusted authority to enforce it all. Smart contracts are a revolution in how we conduct business. They ensure that a contract will be executed as it was written. No outside enforcement is needed. The blockchain acts as the intermediary and enforcer.
Smart contracts are a big deal because when machines start executing contracts, it becomes difficult or impossible to undo. It also brings up an important nature of these instruments that can’t be overlooked and my first law of smart contracts: She who controls the data, controls the contract. All smart contracts verify an external data feed to prove performance and release payment to the correct party.
Although smart contracts are a revolutionary new technology, they can’t yet interpret the intent of the parties entering into the contract. Legal contracts in our society rely on people to interpret what the parties entering into the contract meant. Computers (at least so far) can only understand code, not the intent of the parties.