Smart Contracts Will Shape The Future
Every now and then we keep hearing how technology is substantially impacting the digital business world. And now it has become almost impossible to ignore the capabilities of all these significant advancements.
You might have heard how cryptocurrencies are going the change business and economy. They’ll disrupt banking and break down all the financial barriers and ease up international trading and currency exchange. However, it hasn’t happened yet, but the chances are that it will take place soon. But, while we were all discussing cryptocurrencies, another major blockchain revolution took place beneath this layer- Smart Contracts. And the chances are it will impact businesses far sooner and far faster.
In a nutshell, smart contracts are computer programs that are built on blockchains, mostly Ethereum. But how is it exactly going to shape the future of business?
Let’s break down all the points and check how is it exactly going to do this. But first, let’s start from blockchains.
What is Blockchain?
According to CoinMonks, “Blockchain is a distributed ledger, which simply means that a ledger is spread across the network among all the peers, and each peer holds the copy of the complete ledger.”
Now that you know what’s blockchain, it’s time for you to know about Smart Contracts.
What is a Smart Contract?
A smart contract is a computer algorithm that has been built for the conclusion and endorsement of self-executing contracts that can be implemented in blockchains. These contracts are written in code formats that subsist in the distributed database called blockchain, and this register is maintained as well as managed by a network of computers. Smart contracts make the exchange of money, property, or asset possible without indulging any intermediaries.
Typically, for performing any activities like the, you’ll need a lawyer, pay for the proceedings, and wait for the paperwork to be done.
How Is Smart Contract Better Than Traditional Contracts?
Let me give you an instance, suppose you wish to buy a second-hand laptop through some platform where people buy and sell things. But you’re too confident about it and think that they might cheat you if you prepay for it. Both the parties are worried because of the chances of fraud, and that’s where smart contracts can work the best.
With the help of smart contracts, special software will keep monitoring as well as controlling both parties to fulfill their obligations that are stated in the contract. Moreover, it will also automatically levy fines and charges for violation of any of the terms.
Smart contracts allow both parties to have a safe agreement and restrict them from making any violation of the terms as they are based on cryptography. Thus it is more beneficial since here you don’t need to pay to the lawyer or the intermediaries or sue for violation of terms.
In addition to it, the fulfillment of the contract is moving with any interaction between the parties and making the entire process simpler, affordable, and safer.
How Does It Work?
As mentioned above, smart contracts are powered with blockchain technology.
It is a distributed register on a decentralized system and is available on several systems that are connected to a single network. With the help of blockchain, one can make transactions, share information, and securities with the involvement of banks and intermediaries.
A smart contract is a type of software that is built based on computer logic and written in code form. This is the reason why all the parties in the agreement can be confident about the contract terms, and none of the participants will be able to alter it.
That’s how smart contracts work using blockchain. It can be either based on Ethereum or Bitcoin, but it doesn’t matter.
What One Needs To Create a Smart Contract?
There are a few things that you would need to find out how to create a smart contract.
Software– A software must have access to goods or services that are used as the primary basis of the contract, and this software should have the right to grant or deny access to this service.
Digital Signatures– All the parties involved in the agreement should sign the contract in digital formats before initiating.
Terms of Agreement– A set of terms should be created before the creation of the agreement. All the terms should be indicated consequently, and all the parties should be ready to sign these terms.
Decentralized Platform– A smart contract is added to the blockchain of this platform and is stored distributed on all the connected computers of this platform.
Main Ways To Use Smart Contracts
The simplest way of how smart contracts can be used is Multisignature.
With the help of Multi Signatures, parties involved can set a certain amount of coins, and if anyone wants to spend the coins, it would need signatures of more than half of the parties to unfreeze the coins.
Such steps allow the funds invested in the project to be secure. In case of any issue, the funds will securely get transferred to the owners.
Smart contracts can be used for many purposes like insurance, transfer of property and registration, lending, etc.
Major Fields for Using Smart Contracts
Smart contracts can allow users to bypass intermediaries while transferring securities. During this process, automated payments of the dividends and obligation management happen.
Smart contracts built on any decentralized platforms can make it possible to control and manage your data, digital assets, etc. You can choose what data you need to disclose and what not.
The best part of a smart contract is that it simplifies the process after each and every deal. All the terms and conditions are indicated in the contract only, and all the parties need to adhere to it.
In case is the vendor fails to provide quality goods and services, they won’t get paid and will also need to pay the penalty.
With the emergence of smart contracts, international payments will become much easier. Contacts can make the payments faster for a bargain with a guarantee.
It also automates the process of mortgage and makes it easier and faster.
Organizations working in the financial sector can record data using smart contracts. It lowers down the expenses for audit and modifies the process of financial reporting.
The usage of smart contracts will allow users to transfer property without worrying about the chances of fraud.
It can also be beneficial for car insurance as it can store insurance policy and match with the driving history of the car.
Supply of Goods
Because of smart contracts, it has become possible to control as well manage the entire supply chain of goods in real-time mode.
Smart contracts can help in protecting the confidentiality of the patients and can also improve the process of transfer of health details to maintain anonymity.
Since smart contracts can automate all the data about the patients, it can modify the process of transferring the data between clinics.
Benefits of Smart Contracts
Let’s check out some of the best advantages of Smart Contracts-
Faster And More Affordable
As most of the processes are automated and don’t require intermediaries, it makes the process cheaper as well as faster.
A smart contract is encrypted as well as stored distributedly, and that guarantees protection for data loss and unauthorized alterations. In this way, the decentralized platform means a lot for smart contracts.
With smart contracts, everything becomes automatic, and in this way, it minimizes manual labor, probability of making errors. In this way, it lessens the number of mistakes that can be made through manual processes.
There are several smart contracts available, and as per your requirements, you can choose the most specific one.
All the parties involved can monitor the progress made in the deal, and at the same time, they can maintain confidentiality.
Smart contracts are self- checking as well as self-executing, so people don’t need to get involved in the process.
While there are several benefits of smart contracts, there are also some significant drawbacks of it.
Drawbacks of Smart Contracts
As humans make even smart contracts, there can be a few mistakes. And it is blockchain-based code; you can later once it’s on.
As blockchain is still at its nascent phase, it requires constant revisions and so smart contracts might also need the same.
Not Legal Yet
Even today, smart contracts aren’t authorized by most of the government bodies.
Lack of Flexibility
As all the terms are framed in advance, making changes with time is impossible once it’s programmed.
Smart contracts can be the next big thing in the business industry because of the perks that it provides. However, as it is still budding, it might need some modifications to become the perfect choice.
By Harikrishna Kundariya