Are you looking forward to becoming a smart contract developer? Well, this article provides a comprehensive guide on smart contracts, enlisting its key advantages over traditional contracts, its use-cases across various industries, focusing on challenges.
So let’s get started.
Table of Contents
- Smart Contract: A Self-Enforcing Agreement
- Key Advantages of Smart Contracts Over Traditional Contracts
- Use-Cases of Smart Contracts
- Concluding Lines: Are There Any Challenges?
Smart Contract: A Self-Enforcing Agreement
Smart contracts are lines of code stored on a Blockchain that gets executed automatically when predetermined conditions are satisfied. It facilitates the exchange of money, shares, or anything valuable. Such contracts perform under the decentralized network, known as ‘Blockchain.’ By using Blockchain as its underlying technology, it verifies, captures, and executes agreed-upon terms between participating parties. It is also important to note that such contracts execute on the Ethereum blockchain’s decentralized platform, and this is the reason why Ethereum is recognized as the kin of smart contracts.
There are multiple benefits of smart contracts, especially in business collaborations, where they can be utilized to implement some kinds of agreements so that members can be sure of the end result without involving any third-party. Each agreement can have a digital record and signature that could be identified, verified, stored, and shared.
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Key Advantages of Smart Contracts Over Traditional Contracts
If we talk about the traditional contracts, these are the sets of agreed-upon terms, described in a human language, enforceable by law. The time needed for preparing and formulating such contracts is tedious and time-consuming.
Now, let’s first understand some of the benefits of smart contracts over traditional contracts.
Automation and Time Savings
Unlike traditional contracts, smart contracts are automated and programmable. The sheer number of intermediaries involved in the execution of a traditional contract is responsible for slowing down the entire process. Moreover, the time needed to formulate the traditional contract ranges from one to several days. But with Blockchain-based contracts, this period can be reduced to a few minutes.
Transparency and Accuracy
Now, we all know, terms and conditions are predefined and pre-embedded in a smart contract. It is also important to note that these codified terms are fully visible and accessible to all relevant parties, which facilitates complete transactional transparency.
What happens is that as soon as the desired condition is met, remittance occurs automatically and is recorded, offering complete transactional transparency, and this, in turn, leads to decreased monitoring costs and removes the likelihood of manipulation or errors.
Unlike traditional ones, smart contracts offer security and confidentiality by making use of cryptographic algorithms, especially if the contract is stored on a private ledger rather than a public ledger. All actions stored on smart contracts are recorded, verified, and encrypted, which makes them extremely difficult to hack. Security features can also be integrated into smart contracts for automatically generating backups and duplicates in the case of data losses or hacks.
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Use-Cases of Smart Contracts
Smart contract use-cases range from simple to complex. Right from conducting economic transactions to registering any kind of ownership and property rights, they can be utilized for various use-cases.
With the help of smart contracts, trade finance can also be revolutionized. By automating approval workflows, clearing calculations in a few minutes, and offering international goods transfer and trade payment initiations, such contracts can benefit the finance industry.
Moreover, such contracts will improve the liquidity of the financial assets, in return, improving the suppliers, buyers, and institutions’ financial competencies. Apart from all, financial services, including mortgages and loans, can also be improved by connecting the parties and ensuring that the entire process can be completed in a friction-less way.
This is another crucial use-case of smart contracts that has the ability to improve this domain manifold as it can track items with complete visibility and transparency. Businesses and enterprises can use smart-contract powered supply chains and improve their inventory tracking to a granular level. Other benefits include a reduction in the verification process and enhanced tracing results, leading to fewer frauds and thefts.
When it comes to property ownership, smart contracts can prove to be very beneficial. They can be utilized for recording all types of property ownership from buildings, land to phones and watches. Within the housing market, such contracts can remove the need for expensive services, for instance, provided by lawyers and housing brokers. For the first time ever, it allows sellers the ability to handle the transaction completely by themselves.
Apart from these, smart contracts can also be utilized for clinical trials, mortgage systems, insurance, crowdfunding, voting, and much more.