It was 2009 when blockchain technology stepped into the world. The speculations weren’t strong with the technology back then. Bitcoin, however, survived and today, as we all know, created history. Cryptocurrency, one of the aspects of blockchain technology, created a buzz and helped the subsequent evolution take place – smart contracts are one of them.
A smart contract is a set of transaction rules or a computer program that intends automatic control, execution, or document legally admissible actions and events according to the terms and conditions of an agreement or a contract. Smart contracts aim to reduce the need for trusted intermediaries, enforcement costs and negotiations, losses from treachery, and the reduction of unexpected and hostile accidents. As an example, consider vending machines as the oldest work of technology similar to smart contracts application.
The second generation of blockchain technology started with the release of Ethereum by Vitalik Buterin and Gavin Wood in 2015. With this, new techniques and concepts to manage distributed ledgers were introduced. An example of the techniques that brought computerization to the whole blockchain network is smart contracts. In addition, several cryptocurrencies encourage the use of scripting languages that acknowledge advanced smart contracts between untrusted parties.
Understanding Smart Contracts
The term smart contract was given by Nick Szabo to refer to a set of promises defined in a digital form with predefined conditions within which the parties agree to fulfill the promises. Specifically, smart contracts digitize agreements by converting the terms and conditions into digital codes that execute automatically when the parties meet the contract promises.
These contracts can be used for real estate transactions as well. A smart contract that automatically seals the deal once the seller receives the set property value. The digitization of property on blockchain technology is necessary for dealing through smart contracts.
Benefits of Smart Contracts
To understand the concept of smart contracts, let us look into the benefits offered by smart contracts.
- Performance speed
- Free of interference
- Precision and accuracy
One of the factors that prove smart contracts are worth it is the level of security delivered by it. Smart contracts operate on networks with unchangeable data. It means that the data generated cannot be altered or edited in any way. It enables the workflow to execute securely, keeping the certainty of the information. The encryption technology implements smart contracts as planned.
One of the significant benefits that smart contracts offer is the automatic execution when the contract conditions are fulfilled. Thus, no manual operations are needed to achieve the results. In other words, smart contracts are free from interruptions, and the set conditions are unchangeable by any third party. Thus, it helps the organizations automate certain business features and resolves issues where trust is an issue.
In smart contracts, it is not necessary to trust the other parties to execute a transaction. Thus, making the whole system trustless. The integration of decentralized network architecture makes the whole system trustless because carrying out a trade or a transaction does not need trust as its intrinsic part.
Using smart contracts makes the system cost-effective. The removal of mediator beneficiaries during a transactional process reduces the cost of operation. It makes the system fast and much more efficient.
As compared to the traditional approach, autonomous smart contracts execute much faster. Furthermore, as all the specifications are already defined, smart contracts are only required to validate them before execution.
Free of interference
Once the smart contracts begin execution, interrupting or halting the process is not possible.
Precision and Accuracy
Another aspect that makes smart contracts beneficial is the quality of precision and accuracy provided by it. If the coding is accurate and error-free, then the execution is also error-free.
Smart Contracts: Best Use Case
In terms of practical applications, the smart contract use case varies depending on the organization and the sectors it is dealing in. Some of the best use cases are:
- Secure financial activities
- Financial data recording
- Governmental applications
- Insurance and Finance
- Digital recognition
- Trading and related activities
- Supply Chain Management
- Clinical Trials
- Mortgage System
Secure financial activities
Smart contracts have simplified and enhanced capitalization table management. It assures not to involve mediators between the parties, including security custody chains. Apart from using smart cases for securities, organizations can use them for automatic transactions, dividends, stock splits, and liability management. Smart contracts can also digitize workflow and assist in reducing operational hazards.
Financial Data Recording
Data dealing with financial transactions are important and require proper and accurate maintenance. This is where smart contracts prove to be the best use case. Smart contracts offer the necessary steps to data records for transparent and accurate financial data collection. The use of smart contracts has simplified the process to manage the consistency in data recording across organizations resulting reduce in reporting and auditing costs. Even smart contracts have proven to be helpful in minimizing accounting costs. Also, the interworking efficiency among distributed ledger networks and legacy network enhances.
The automation feature offered by smart contracts can help the government to govern operations. For example, one of the operations is controlling property transfers which include land title recording. Smart contracts can also assist in land title recording that requires transparent and efficient property transfers by the parties. It also improves the overall system transparency and minimizes auditing expenses.
Insurance and Finance
One of the most used- cases of smart contracts is the insurance sector. Most of the disagreements happen in the insurance sector. Smart contracts deploy a lot of technology to expedite themselves. Car insurance can be taken as an example where smart contracts can liquidate insurance as soon as possible. Smart contracts ensure genuine documentation, including the driver details, with the use of technology. And then facilitate the policy. If the smart contract establishes the right policy, accurate documents, and ways to capture data, it can execute automatically after the accident. Remember that smart contracts execute based on the data collected so that no swindling occurs during the process.
For an individual, the essential virtue is individual identity. Digital recognition or identity is one of the smart contracts’ best use cases. An individual can attract a lot of opportunities if the proper and appropriate usage of digital identity is made. The digital identity allows securing the identity from counterparties and sharing it with the desired organization.
With the availability to connect to multiple services through the internet, an individual knowingly or unknowingly shares the identity with the associated organizations. Such organizations then map the identity. This is where a smart contract can be used efficiently. Smart contracts help the counterparties by only providing the necessary information while hiding their true identity. Smart contracts can also help counterparties to verify financial transactions without revealing their true identity. The use of smart contracts can optimize compliance, interoperability, and flexibility of the system.
Trading and related activities
Another best use case of smart contracts is in trading activities. When the beneficiary intermediaries are removed, smart contracts automate the work. This helps to minimize the additional operational expenses related to them. Several companies use smart contracts to carry out such tasks.
- Supply Chain Management
With the implementation of smart contracts, organizations can make several optimizations in supply chain management. For example, an enterprise can use smart contract-supported supply chains to enhance inventory tracking. In addition, it makes the product tracking system more visible and transparent. Other business aspects directly relating to the supply chain can also be improvised. Moreover, using smart contracts can simplify the lengthy verification process and boosts tracking results in fewer scams and thefts. However, to inculcate the effective use of smart contracts with organizational operations, additional equipment like sensors needs to be installed.
Smart contracts can improve the functionality of clinical trials by optimizing cross-organizational visibility. The privacy-preserving and automation feature automates the sharing of data between organizations. Precisely, smart contracts help to authenticate, identify and authorize the information.
An escrow is a legal agreement in which a third party holds many assets until the specified agreement promises are met. To release the holdings, the payer needs to take action. It is possible to automate the whole process with the use of smart contracts. The process executes automatically as soon as the service provider verifies and authenticates the details.
Smart contracts can also benefit freelancing platforms like Upwork, where escrow amount is held for platform services. Numerous organizations are integrating smart contracts for such purposes.
One of the effective applications of smart contracts is in the mortgage system. The autonomous process eases the mortgage for both the purchaser and the owner. Smart contracts require codings according to the mortgage system. When the coding is done accordingly, smart contracts are set to work and execute the entire process automatically. Thus, the entire process gets fast, easy, and inexpensive.
Smart Contract Requirements
For efficient smart contracts, smart contract developers are required. A smart contract developer is a skilled professional who deeply understands smart contracts. But then the question arises, how to become a smart contract developer?
Well, there are several online opportunities available to become a certified professional. Many technological institutions are offering blockchain training, blockchain courses, and blockchain certification. You can opt for any of these courses either online or offline. If you want to get certified in smart contracts mainly, then search for smart contracts course or smart contract developer course. Several reputed institutions are following the trend and offering in-demand courses and training in online and offline mode.
Smart contracts provide unique solutions to different problems. It can help the economy due to its automation for decentralized architecture features. However, organizations must hire professional and certified smart contract developers to enhance the efficiency of smart contracts.