AI-generated summary
Distributed ledger technologies (DLTs), which underpin distributed databases, are transforming accounting and contractual systems by providing nearly 100% reliable information storage. Unlike traditional databases stored in one place, DLTs distribute data across many nodes worldwide, making fraudulent alterations practically impossible. Built on this foundation are smart contracts—simple computer programs that automatically execute predefined actions when specific conditions are met, much like a thermostat activating a heater when the temperature drops. This automation eliminates the need for intermediaries, ensuring contracts are executed exactly as agreed without human error or delay.
Smart contracts offer several key advantages. Their decentralized nature ensures validity and trustworthiness, as no single party can alter the contract once conditions are met. The underlying blockchain technology provides robust security by requiring consensus among nodes, which prevents data loss and errors. Additionally, smart contracts enable full automation, executing actions immediately when triggers occur, which is especially useful for activities like automated purchasing or payroll. Due to their reliability, security, and versatility, smart contracts have broad applications across industries—from real estate rentals and contract signing to emergency alerts—making them a promising, multifunctional tool for the future of bureaucracy and beyond.
Smart contracts work as smart contracts that self-execute based on the fulfillment of certain conditions. What possibilities does this new technology open up?
Distributed databases (DLTs) are revolutionizing accounting systems because the information they contain is 100% reliable. It is on these databases that
What is a smart contract?
Smart contracts are very simple computer programs that use distributed ledger technology (DLT) as a support. It sounds a bit intimidating, but the truth is that these mechanisms are extremely simple.
Unlike a traditional database (Excel, to give an example that we all have in mind), distributed databases are not stored in a single place. Instead, they are registered in a shared or distributed way, so that many users (here called nodes) have a copy of the database in question.
When many nodes have the same database, fraudulently altering it is practically impossible. It would be like trying to edit tens or hundreds of files located all over the planet. Hence, they are considered an exceptionally reliable record, close to 100%.
Different triggers are built on this register, which are programs in the form:
If [something happens] then [I do something]
These programs are smart contracts, which are activated under certain conditions in the same way that the thermostat tells the climate appliance to start:
If [the temperature drops] then [the boiler turns on]
Given the reliability of DLT storage technology, and the fact that smart contract automations are built on it, smart contracts are an ideal option for all types of applications that require a high level of demand in their execution.
The Big Advantages of Smart Contracts
Contracts between two parties are not new. Neither are self-contained, self-propelled triggers. In fact, the first dimmable thermostats date back to 1620, when Cornelis Drebbel used the mercury thermostat to control the temperature of a chicken incubator. Compared to simpler systems, smart contracts have key advantages :
1. Validity: smart contracts are fulfilled without intermediaries
Not relying on a central authority, smart contracts are executed without intermediaries. In other words, no one has to push a button, make a decision, make a mistake or simply change their mind at the last minute. If the conditions of the contract are met, then the contract is executed thanks to distributed data processing.
The security and reliability that this brings to agreements between parties is simply unmatched by traditional methods. For example, a civil contract may have been signed by two or more parties, and even regulated before a notary, but there is a possibility that it will not be carried out. A smart contract cannot be unfulfilled, eliminating human error.
2. Risk reduction: almost absolute safety
Distributed database technology typically uses blockchain mechanisms such as proof-of-work (a system by which nodes compete to consolidate information), which solves a mathematical problem colloquially called “the Byzantine generals’ problem.” In other words, how to make a non-centralized system work.
Whether through proof-of-work or other mechanisms such as storage or consensus proofs (different ways of confirming information), it happens that distributed networks almost completely eliminate any risk derived from errors. They simply cannot be given. They are secure by default because the way they set information requires all nodes to confirm it.
It also provides security to know that nothing happens if a node goes down: there will always be nodes available with the same content. In other words, information cannot be lost because it does not exist in a single place.
3. Automation: they are always fulfilled
As mentioned, smart contracts cannot be disfulfilled if the trigger conditions are met. This causes
For example, a manufacturing company could generate smart contracts for the purchase of raw materials if several conditions are met: that it is missing from the warehouse, that it is in a certain price range and that it will arrive when it is needed. Without these conditions, the contract is not executed, but at the time they occur (which can be in the early hours of the morning) they are self-executed.
What applications are smart contracts useful for?
The rapid acceptance of this smart contract technology over DLT distributed database technology is completely consistent with its advantages and applicability. Basically, any system that needs to be executed under certain conditions is susceptible to application.
From automated purchasing to payroll payments, from contract signatures to mobile notifications, from smart rentals to earthquake early warning systems. That they can be used for virtually everything will make smart contracts a basic, horizontal technology. Multipurpose, versatile, ubiquitous, functional and secure, it seems like the new iteration for signing agreements.
