Blockchain technology has disrupted many industries, but one of the most exciting applications is the use of smart contracts. Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. The code controls the execution, and transactions are trackable and irreversible.
Smart contracts offer several benefits over traditional legal contracts:
Speed and Efficiency: Smart contracts automate the contract execution process. There is no need for intermediaries like lawyers to review and enforce the contract. This also reduces the risk of manipulation or errors.
Lower Cost: By removing the need for intermediaries and administration, smart contracts can significantly reduce the cost associated with creating and executing contracts.
Transparency and Trust: All transactions are recorded on the public blockchain, providing full transparency into the details and execution of the contract. No party can dispute the terms or facts of the agreement.
Security: The distributed and encrypted nature of blockchains make smart contracts very difficult to tamper with or manipulate. This ensures that the contract is secure and impartial.
Automation: Smart contracts can automate transactions when certain conditions are met. This allows for the seamless execution of contracts at scale. Many time-consuming and repetitive processes can be fully automated.
Immutability: Smart contracts are recorded on the blockchain, which makes them very hard to modify or tamper with. Traditional legal contracts can be amended or terminated by the parties involved, and there is always a risk of loss or manipulation of the physical documents.
Intermediaries: Smart contracts do not require intermediaries like lawyers to establish or enforce the agreement. The code itself executes the contract. Legal contracts typically still need to be reviewed and enforced by legal professionals and the court system.
Conditional logic: Smart contracts can contain conditional logic that automatically triggers certain actions if predefined conditions are met. This type of advanced functionality is hard to achieve with a traditional legal contract.
Some examples of how smart contracts are revolutionizing businesses include:
Supply Chain Management
Smart contracts can improve supply chain efficiency by automating the execution of contracts once delivery conditions are met. Payments can be released automatically when goods are received or other milestones achieved. This reduces delays, disputes, and costs.
Real Estate
Property sales, rentals, and transfers can benefit from smart contracts. Contract details like payment schedules, insurance requirements, and price adjustments can be pre-programmed. Ownership transfers and release of funds would be automated once all contract terms are met. This cuts down on paperwork and mediation needs.
Healthcare
Smart contracts can automate health insurance claims by releasing payments once a patient’s records confirm treatment was received or outcomes achieved. Contract details like required deductibles, coverage limits, and reimbursement rates are captured in the smart contract code. This reduces claim processing times and costs.
Governance
Some believe smart contracts could even be used to build new governance models. Voting, transparency, policy changes, funding disbursements, and rules enforcement could be administered through smart contracts. By codifying governance rules and automating their execution, smart contracts could reduce bureaucracy and corruption. However, there are many open questions on how realistic this may be.
Example of smart contracts in use:
A popular example is Ethereum's ERC-20 token standard. When companies create new cryptocurrencies on the Ethereum blockchain, they typically follow the ERC-20 standard. This is a smart contract that defines some rules and functionality that all Ethereum-based tokens must follow.
For example, the ERC-20 smart contract specifies:
· How users can transfer tokens between accounts
· How users can approve other accounts to spend a certain number of their tokens
· How users can check their token balance
· Events that get emitted upon token transfer or approval etc.
By following this standard, all Ethereum tokens have the same basic functionality built-in. Developers can then build other smart contracts, decentralized applications, and exchanges that interact with any ERC-20 token.
When companies launch a new ERC-20 token, they deploy the ERC-20 smart contract to the Ethereum blockchain with their token's name, symbol, number of decimal places and total supply. Then the new token will have all the functionality defined in the ERC-20 standard - it becomes a self-executing agreement between the creators of the token and anyone who buys, holds or trades those tokens.
Other examples of live smart contracts include:
· CryptoKitties - Lets users collect, breed and trade virtual cats. The core gameplay is built into smart contracts.
· Augur - A decentralized prediction market platform. Betting contracts and market mechanisms are implemented as Ethereum smart contracts.
· Gnosis - A platform for decentralized prediction markets. Uses smart contracts to run the market and ensure all bets and settlements are conducted fairly.
· Aragon - An organization management tool build on Ethereum. Allows groups to manage ownership, voting, payments, fundraising, accounting, and other organizational tasks using smart contracts.
So there are many examples of smart contracts actively in use to facilitate agreements, govern transactions, and build decentralized applications on the Ethereum blockchain. The potential uses of smart contract technology are vast and still largely unexplored.
In conclusion, while still nascent, smart contracts have huge potential to positively impact many businesses and industries. They offer more efficiency, lower costs, increased transparency and new opportunities for automation. Smart contracts are revolutionizing the way we conduct business on the blockchain. Overall, the future is very bright for this exciting new technology.
