Everything is smart nowadays: Smartphones, Smart Cars, Smart Freeways, and Smart Cities so why not Smart Contracts?
I even came across a Smart Biscuit recently, but for me, this is a case of bad marketing and an example of trendy word overuse.
However, blockchains with Smart Contracts are smarter as a matter of fact.
The term Smart Contract is not very new. You can read about Mr. Nick Szabo, or Vending Machine as the first example of SC use case 1 (Wikipedia,2023). Those are both pretty well-known facts and can be sooner or later discovered in browsers.
What’s more important to keep in mind is, that smart contracts are very significant innovative tools in the technology of blockchain. They have a very powerful potential to reconstruct the way how we are conducting business, transactions, and interacting online with each other.
So, what are they, Smart Contracts?
In plain terms, a Smart Contract is a small computer program that runs on a blockchain. It is a self-executing contract with the terms of the agreement between one party (a buyer for example) and a second party (seller in that case), which is directly written (coded) into lines of code on the blockchain.
To make it happen: First, identify the agreement, then describe the set of requirements, finally code the business logic, and deploy it on a blockchain 2 (Nagar T, 2023).
It’s as simple as it sounds, believe me – especially for properly qualified smart contract coders and developers. But in the close future, low-code or no-code development platforms will provide more opportunities for Smart Contracts lovers.
Until now, despite some complexity in smart contracts coding everyone can use it without the need for a deep understanding of the structure and anatomy of smart contracts.
You do not need that knowledge to execute it and use it. Smart Contract run automatically when a certain condition is met, and their purpose is making our life easier and cheaper. Especially if compared to traditional contracts.
They also run seamlessly if no bugs were coded to the contract.
But sometimes if software was bugged the contract can be dodgy. Working not as intended or prone to hack.
As built on an underlying blockchain structure, once deployed Smart Contracts stay immutably forever. That is the true for the vast majority of smart contracts built on Ethereum and similar blockchains. In that case, a badly coded contract must be terminated and replaced by a newly built and decent one. They are not famous for being fixed, smart contracts. As usual, there are some exceptions to the rules, but you can take it as a ground true story.
In some cases, depending on the computer language used to code Smart Contracts, they may be mutable – fixable or ready for upgrading. This may be a good topic for another story.
Also, “The code and the agreements contained within it exist usually on a decentralised network of computers that maintain and validate the blockchain”.
I hope I did not over-complicate it and I did not discourage you to continue reading.
Smart contracts are designed to automate the enforcement of agreements, eliminating the need for excessive intermediaries (like lawyers, banks, and other middlemen representing third parties). This means that transactions can be completed quicker, more efficiently, and at a lower cost than in the traditional way of doing daily business.
They have the potential to reconstruct and transform many industries such as real estate, health care, finance, and supply chain management. Also, governance, and government voting system 3 (CFI,2023).
Imagine “putting pre-election promises on blockchain and fulfilling them by triggering Smart Contracts” … How Awesome!
Then, how do they work, the smart contracts?
In general, smart contracts are self-executing programs that use “if-then” statements to automate the terms of an agreement. The “if-then” statements are encoded into the blockchain, which executes the contract automatically when certain conditions are met. They digitally accelerate the verification, control, and execution of any specified agreement.
It may be a simple agreement to buy something from someone. For that example, you could create a smart contract that states that you will pay a certain amount of cryptocurrency/digital assets when the ordered product is delivered. The smart contract would automatically execute the payment when the item is delivered, sending the agreed-upon amount to the seller’s wallet.
However, smart contracts can also be used for more complex agreements, such as an entire supply chain management system. In this case, the smart contract would automatically trigger the next step in the supply chain when certain conditions are met, such as for example the arrival of a shipment. Then step by step track and execute the entire process.
So, what are the benefits of using smart contracts if any?
SC offers multiple benefits over traditional contracts. They are faster, more transparent, secure, more efficient, and cheaper. By eliminating the need for an excessive middleman, they are reducing the risk of fraud and increasing transparency.
In terms of efficiency, SC automates the enforcement of agreements, minimising the need for lawyers and the traditional banking system. This makes all transactions faster and more efficient.
In terms of transparency, all parties can see the terms of the agreement. This reduces the risk of fraud and ensures that everyone is on the same page.
As per Security, SC is encrypted and stored on a decentralised network of computers. This makes them difficult to hack or tamper with.
Talking cost saving, they are significantly lowering costs by eliminating the need for multiple intermediaries and therefore reducing the cost of transactions. This makes them more accessible to people who cannot afford to pay for traditionally delivered contracts.
When automation is considered, SC can be used to automate complex processes. This solution reduces the risk of errors and makes each process more efficient. It perfectly applies to the modern banking system on blockchain and all sorts of associated finance protocols.
To conclude, smart contracts have the power to reform the way we conduct business. They offer more benefits than traditional contracts, and as blockchain technology becomes more widely adopted, we can expect to see more applications of smart contracts. In real-world use cases and everyday life practice.
Lastly, smart contracts could also be used to automate the distribution of local or global aid and disaster relief. It will make it transparent, more efficient, and faster.
But till now, if you are not already dealing daily (on DeFi or CeFi) with multiple Smart Contracts, just jump and buy a can of Coke from your vending machine to trigger and execute the oldest equivalent to Smart Contract n (Wikipedia, 2023).
References:
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Smart contract (2023) Wikipedia. Wikimedia Foundation. Available at: https://en.wikipedia.org/wiki/Smart_contract (Accessed: April 3, 2023).
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Nagar, T. (2023) How to create a smart contract on Blockchain in 2023, Dev Technosys. Available at: https://devtechnosys.com/insights/how-to-create-a-smart-contract-on-blockchain/ (Accessed: April 8, 2023).
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Smart contracts (2022) Corporate Finance Institute. Available at: https://corporatefinanceinstitute.com/resources/valuation/smart-contracts/
Originally published at https://spektrumlab.io on April 10, 2023.