Smart contracts are coded in with instructions to automate monotonous and repetitive tasks. First coined by Nick Szabo in the year 1994, smart contracts run on blockchain technology in the Ethereum environment. They are only effective if the predetermined conditions are fulfilled.
The simplest example of a smart contract in real life is a vending machine. It accepts payment and only then does it dispense the product selected. The machine is coded in with certain commands that ensure payment is made in order to execute further actions. It’s not sorcery! It is just simple coding.
The benefits of smart contracts are not limited to automatic payment processing. They have numerous other applications already in working and many others yet to be discovered. As Blockchain technology is evolving unceasingly, there is no way one can guess what’s to come next.
What’s so smart about Smart Contracts?
Often, the laziest come up with smart ways to get things done. In this particular case, smart contracts. A smart contract will do exactly what you need it to do if you’ve coded in the instructions perfectly. For example, if you have subscribed to a video streaming application and have to make monthly payments, it can get annoying. With a smart contract, you could automate these monthly payments and never have to worry about it again.
Let’s think about a real-world situation in which traditional contracts are used. Real estate, for instance, requires a lot of paperwork, enough to make one dizzy. What can smart contracts do? It can digitize contracts and effectuate transactions instantly. That house you took 3 months to buy? Watch a smart contract do it in a few minutes!
Blockchain technology has allowed ‘no-intermediary’ transactions to take place. Banks, lawyers, middlemen, you name it! None of them have power here. Typically, contracts need a mediator to validate and act as a witness for the agreement drawn up. Smart contracts run on blockchain technology and therefore if the involved parties agree upon certain terms, the contract is unchangeable. This direct system also provides the participants with optimum privacy.
Eliminating intermediaries results in a reduction of costs involved. No more heavy charges on contract validation and formulation. All the fees you had to pay intermediaries to act as a trusted third party are no longer required. The only expense that needs to be covered is the development of the smart contract. In addition to this, digitalization helps cut down on paperwork. What better way to save paper and the environment?
The terms of a smart contract are open for all the involved parties to see. There is no way that participants at any given point of time can modify the specifications in the contract. Even if they do so, the contract is void. This significantly helps avoid fraud and is proof of the agreement that was formed. On the whole, smart contracts make it impossible to deceive the stakeholders in the agreement.
Where can we use Smart Contracts?
We are all familiar with the identification processes and how tiresome they can be. Collecting all the required documents, making copies, updating information constantly, are all tasks that get on our nerves. Whether it is to start a bank account, buy a property or join a new job, personal information is needed. With smart contracts that store all the details in one place, life is more organized and convenient.
Finance and banking
Typically, bank transactions can take a while to process, global transactions being much more time-consuming. In addition to this, there is a cost levied on the individual whenever a transaction is made (transaction fee). Smart contracts are peer-to-peer, thereby allowing users to make direct transactions and save on costs. The transactions that occur also take only a few minutes when compared to traditional transactions.
Insurance claiming is not a pleasant process. Take a look at insurance offices and you'll see all the paperwork piled up in stacks. Smart contracts automate processes, be it making monthly premium payments, claims, or formulating insurance contracts. These digital contracts store all transaction details immutably, making it easy for users to refer back to. There is no need to break one’s head over the long processes because smart contracts will help simplify them.
Imagine the long dreary process of buying and selling a property that involves a string of intermediaries who will charge exorbitant rates. Painful right? Smart contracts can help transfer ownership rights in a matter of minutes and there is immutable proof of the ownership. They also reduce the expenses so drastically that you will wonder why they aren’t as widely implemented as they should be.
The supply chain, a chaotic, mad jungle of processes, is in dire need of smart contracts. Getting a product to the end-user is no simple feat. With a multitude of intermediaries involved, various stages, heavy costs, and other aspects, the supply chain should be perfectly organized. A smart contract that acts as a tool to automate payments, track products, and record transaction details can enhance supply chain management.
Smart contracts are easy and reliable mediums to patent ideas, concepts, and products. Immutability has its advantages and in this case, it can help individuals protect their property and ownership rights. Royalty for copyrighted work such as music, images, etc. can be easily paid with the help of automated smart contracts.
Blockchain is spreading rapidly to all industries. Smart cities are no longer a distant dream but a near future. An ecosystem that is connected and controlled by advanced technology will help automate processes, bring forth order and organization, and enhance the standard of living. The testing of smart contracts in the real world needs to take place in order to discover their true potential in various industries. The impact of blockchain technology will be felt intensely and soon enough, Smart Contracts will be a Way of Life, with numerous use cases all over the world.