Smart contracts extend the functionality of a Blockchain by allowing value transactions to be settled automatically when certain conditions are met.So what is a Smart contract and How does it work?
What Are Smart Contracts
Smart Contracts are simply computer programs designed to execute certain financial functions without human intervention. Smart contracts are digital contracts represented in code and executed by computers.
Transactions occurring within a smart contract is traceable but irreversible. A smart contract basically works on an “if-then” language. If A happens, then B will take place. So once a contract is set up, the terms will be executed automatically.
When using a Smart contract with Blockchain technology, You won’t need to settle your workers manually, Since smart contracts allow cryptocurrencies to be used in broader business activities like paying your staff automatically when the time is due or when they have completed the task assigned to them.
Even if you are doing business with a potential client for the first time smart contract can function in the absence of trust, because it executes terms without intervention from the parties involved. Once a smart contract is generated, it cannot be reversed.
Smart Contracts are pushing Blockchain Technology into the next stage: “by putting a smart contract on the Blockchain” it eliminates the need for business parties to trust each other or to rely on a Middleman.
When was the first smart contract released?
Ethereum a Blockchain platform that runs smart contracts supports Decentralized applications(DApps) that run exactly as programmed without any possibility of downtime, censorship, fraud, or third-party interference.
These apps run on a custom-built Blockchain, an enormously powerful shared global infrastructure that can move value around and represent the ownership of property. This technology enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past (like a will or a futures contract), and many other things that have not been invented yet, all without a middle man or counterparty risk’.
The smart contract concept was proposed by Nick Szabo in 1994. It allows executing code without the third parties. Satoshi Nakamoto Institute shares an article published by Nick Szabo in 1997 about the dimensions of Smart Contracts design.
Today, considering that transactional systems are being cleared to make way for smart facilities built on a Blockchain is most likely owing to the Devoted Nick Szabo. Most of the existing and potential applications of Decentralized Finance involve the creation and execution of smart contracts in a much complex form
Benefits Of Using Smart Contracts
Like any new technology, there are benefits and risks to smart contracts.
- Automation: Contractual agreements are pretty complicated; this is what creates the need for lawyers, brokers, and escrows services. All these entities do a lot of good, but in the long term, they cost a lot more and are sometimes not necessary. The use of smart contracts simplifies the process, clearing out all the many people needed to enforce a contract. This brings many benefits like speed, clarity, and precision with each contract. (Uplandsoftware: 8 benefits of using automated systems)
- Cost-efficient: The costs for engaging lawyers or other intermediaries to vet contracts and agreements can be high; this is quite expensive and might not be cost-efficient in the case of a business setting. Smart contracts are free as opposed to regular deals, and they also execute immediately once the terms that bind the contract has been fulfilled.
- Autonomy: Smart contracts are self-sufficient; once they are entered into, the parties involved are not subject to external authority, only to the terms they agreed on. This feature also makes them free of manipulation, from either party, increasing the safety and security of contractual agreements.
Ever since the introduction of Blockchain technology, smart contracts have been the highest form of its application. Added with its autonomous power, speed, and transparency, the potential for smart contracts to redefine the industry and the financial sector is limitless. Using smart contracts is faster, easier, and reduces the risk for both parties, on the other hand,
Current Uses of Smart Contracts
The Smart technology may be used in a variety of applications where data have to be transmitted without risk of corruption;
- Healthcare System: When it comes to healthcare, the system itself is often sicker than the patients. Even the terminology is misleading. Today, going to the doctor is about sick care more than healthcare. On the technological front, every step in the medical treatment train is being reinvented with smart contract technology because it helps to maintain the privacy of the patients and maintain their data in a digital ledger format. A smart contract can also be used to make the healthcare system a more streamlined and automated one, by the use of Smart contracts the management can write some term and condition which could be applied once their patient’s data are collected, this greatly promotes the efficiency of the system because Data cannot be lost or stolen.
- Construction: The use of traditional contracting procedures is firmly entrenched in the construction industry, A shift in culture and approach would be needed in the construction industry sphere, and market leaders are committing resources for the transformation. (Smart Contracts Poised to Impact the Future of Construction)
- Digital Right Management: Digital right industry involves multiple parties to create an event. The percentage of payment and copyright is one of the issues that arise. Using smart contract-based system guarantee that royalties go to actual recipients by using ownership right in the Blockchain system.
- Insurance: Traditional insurance system takes a very long time to process a claim. A smart contract-based system can streamline the insurance process and combined with Blockchain technology everything can be made transparent as well as system secure without third-party intervention. As a simple example, the Ghanian insurer, GHI, is piloting insurance powered by a smart contract. When someone buys flight delay insurance, the transaction is recorded in the Blockchain. This smart contract is connected to global air traffic databases.If the flight for which the person purchased insurance is delayed by more than two hours, the system automatically pays them compensation without them needing to make a claim.
- Real Estate: Real estate system in the traditional way involves lots of risks as well as time taking. It also passes through different stages of legal action are also needs to lot of paper signings as well as manual veriﬁcation of the documents. Blockchain technology and a smart contract can overcome the problem associated with the real estate sector. A centralized system can allow buying as well as sell properties without a third party. The document is also veriﬁed and validated digitally. All the documents are also stored digital ledger distributed database where everyone can see. (How Smart Contracts Are Evolving Transactions For Real Estate Companies)
Where Is a Smart Contract Stored
All the transactional data executed by a smart contract are stored in a Blockchain database where everyone can see. Once a contract has been published to the network, it will then perform exactly as speciﬁed without any maintenance or auxiliary input. This means that there is no possibility that a smart contract’s operation produces unexpected results or that it can be violated.
Suppose you want to sell your house or rent your apartment to someone, then you can simply deploy a smart contract in an existing blockchain network. Information regarding the property can be stored in the blockchain and anyone belonging to that network can access that information but they cannot change it. In this way, you can ﬁnd a buyer for your property without the need of any third party. For a wide range of potential applications, blockchain-based smart contracts could offer a number of beneﬁts.