Smart contract

What is a smart contract?

Smart contracts are pieces of code that automate applications running on a blockchain. The contracts will self-execute when the conditions set within the contract will be satisfied. With smart contracts, there are no third parties involved unlike regular apps for example. They also offer transparency and security to users.

Smart contracts usually use the Ethereum blockchain. For example, decentralized exchanges (DEXs) or decentralized applications (DApps) use smart contracts to run on the blockchain. Also, tokens such as ERC-20 tokens are smart contracts themselves.

However smart contracts are not always safe. Indeed, they can contain flaws in their code. Malevolent actors can use these flaws to take advantage of the smart contracts. This is why specialized companies often audit smart contracts before their launch.

How does Smart Contract work?

Creating an agreement:

The agreement between the buyer and the seller is converted to computer code. Then the various transactions The incidents are automatically saved in the Ethereum blockchain. Smart contracts have their own address numbers. And whenever the smart contracts are recorded in the Ethereum blockchain Anyone who has the address of that smart contract will be able to access the smart contract.

Triggering Events:

Smart contracts are required to identify events or purposes. The contract expiration date allows the smart contract to work on its own based on the contract being encoded. These codes identify the steps based on cause and effect. We can explain the principle of cause and effect regarding a set of commands. The smart contracts will continue running until both buyer and seller terminate the contract.

Terminate the agreement:

When smart contracts are created, buyers and sellers need to achieve their objectives or events as was initially agreed upon. In the case that one party does not perform as specified in the contract within the agreed period, blockchain will then refund the money to the other party.

Discover more about blockchain crypto and compliance with our Glossary.

About Scorechain

Scorechain is a Risk-AML software provider for cryptocurrencies and digital assets. As a leader in crypto compliance, the Luxembourgish company has helped over 200 customers in 40 countries since 2015, ranging from cryptocurrency businesses to financial institutions with crypto trading, custody branch, digital assets, customers onboarding, audit and law firms, and some LEAs.

Scorechain solution supports Bitcoin analytics with Lightning Network detection, Ethereum analytics with all ERC20 tokens and stablecoins, Litecoin, Bitcoin Cash, Dash, XRP Ledger, Tezos, and Tron with TRC10 and TRC20 tokens. The software can de-anonymize the Blockchain data and connect with sanction lists to provide risk scoring on digital assets, transactions, addresses, and entities. The risk assessment methodology applied by Scorechain has been verified and can be fully customizable to fit all jurisdictions. 300+ risk-AML scenarios are provided to its customers with a wide range of risk indicators so businesses under the scope of the crypto regulation can report suspicious activity to authorities with enhanced due diligence.