Smart Contract -Everything you need to know
Smart contracts make it possible to transfer anything of value, like money, shares, property transparently without fraud
One of the key aspects of blockchain is its ability to function as a decentralized network shared by all peers, doing away with the need for middlemen or other third-party intermediaries. This feature of blockchain helps save time and the risk of transaction conflicts.
The smart contract supports this unique aspect of blockchain by including clear and immutable conditions that transactions must abide by to be completed. Thus, smart contracts are termed the most used application of blockchain technology in recent times.
If you've been curious about smart contracts, here is definitely the 'smart' read to fill your knowledge. By the end of this article, you won't need to google "what is a smart contract?" again. You'll understand what a smart contract is, its exceptional features, how it is applied, and the code it uses. Before delving into other details, let's understand what a smart contract means in general.
What Is a Smart Contract?
A smart contract is a group of computer code that functions on a blockchain and constitutes a set of rules accepted by the involved parties in a transaction. Once the set of pre-stated rules is met, the smart contract executes itself to deliver an agreed output.
The smart contract facilitates, confirms, and enforces the terms of an underlying agreement, thereby enabling decentralized automation. Smart contracts make it possible to transfer anything of value, like money, shares, property, etc., openly and transparently without the need for a middleman and maintaining an impartial system.
Smart contract was first created in 1993 by Nick Szabo, a cryptographer, legal scholar, and computer scientist, who compared the contract's capabilities to those of a vending machine – digital contracts which could be translated into codes and executed on a blockchain.
Features of Smart Contract
1. Trust and Transparency
Transparency is one of the fundamental properties of blockchain technology, which smart contracts also share. Smart contracts are filled with a set of well-detailed rules accepted by the parties involved in the agreement. These rules are carefully reviewed and put into place only when all parties agree, reducing the chances of conflict and issues later. This property of smart contracts guarantees the involved parties of trust and transparency during transactions.
2. Speedy Transaction Process
Smart contracts are simply run on the internet. Since no intermediary is involved, unnecessary steps along the way are avoided, thereby improving the transaction process. Completing transactions using smart codes is faster than any traditional business process.
3. Accuracy and Precision
Any condition omitted from the contract could cause an execution mistake, so when designing smart contracts, all conditions are included in the detailed form. This makes the smart contract a comprehensive agreement that, when executed, does everything automatically. Contracts made manually run the risk of error since the person in charge of creating them might omit a condition or more. Smart contracts are the go-to when it comes to accuracy and precision.
4. Safety
Due to automated coding features, smart contracts are trusted to be the safest solutions for data encryption technologies now available. They are safe to use for essential transactions since they adhere to the highest safety standards and have a high level of protection.
5. Data Storage
Any transaction's vital information is stored in the contract, and anyone among the involved parties can refer to it at any time. These transactions are recorded as future entries on the blockchain. This is helpful in the event of a future disagreement about the terms of the contract.
6. Paperless
Smart contracts are computer-coded documents; thus, paper documentation is not needed during the entire transaction process. On the one hand, this saves money, and on the other, it benefits businesses worldwide by allowing them to save the amount of paper they need for contracts, thereby fostering their social responsibility.
How Does a Smart Contract Work?
To illustrate how smart contracts work, let's take a real-world example; Suppose you agreed to sell your property to a friend. The process of selling property involves some paper documentation and third parties like real estate agents for land. These third-party agents act as intermediaries throughout the entire process, working on records and overseeing deals.
Since you won't completely trust your friend, the agency provides escrow services that oversee the transaction process, release, and payment. Once the deal is successful, you will have to pay both the agent and the escrow service their commission in terms of the agreed percentages. For this traditional transaction method, the seller and buyer lose extra money for paying the third party.
However, for smart contract-based transactions, there's no chance of involving an intermediary. All the functions done by the estate agency can instead be coded into the smart contract, thus, saving a significant quantity of money on both buyer and seller end.
A smart contract is made with two distinct components; code and data, both of which have an address on the blockchain. While the data specifies the state of the contract, the code instructs it on how to function. The Smart contract functions on a condition-based principle (if this, then that- IFTTT), which will resolve the ownership issue by delivering the asset to the buyer only after the financial, as well as other terms, are met. Smart contracts can replace escrow services since the trust between parties is not an issue anymore.
Moreover, the transaction is stored in a blockchain system which the involved parties can view at any time.
Applications of Smart Contracts
1. Insurance
Due to the lack of automation in the insurance sector, claim processing can take weeks or even months. This becomes a problem for both the customers and the insurance companies because the customers are caught under time limits for their money. On the other hand, companies have to deal with unwanted expenses, dissatisfied customers, and inefficiency.
Using Smart contracts in insurance can simplify and streamline the process by automatically triggering payment for a claim when specified conditions are met according to the client and company's agreement.
2. Health Systems
Smart contracts are used in health systems to securely store and transfer patient data. For instance, medical industries like EncrypGen, employ smart contracts to transfer patient data safely, allowing no external access.
Patients own their data, and if researchers want to use patient data, they will have to pay for it. The patient determines whether they want to sell it or not.
3. Mortgage Loans
Mortgage agreements are complicated since they contain much information, including the mortgagee's income, credit score, and outgoings. Cross-checking these details is necessary before moving forward with mortgage loans. This process is often handled by intermediaries and third parties, which makes it time-consuming and difficult for both the lender and the loan applicant.
Employing smart contracts, in this case, is beneficial because it eliminates the need for intermediaries, cutting down lengthy processes and confusion. Also, all details will be stored in one location, which is always accessible by both parties.
4. IoT Technology
The Internet of Things is used to connect everyday gadgets to the internet. It enhances the interconnectivity of the systems with the aid of sensors. These gadgets can be linked to the blockchain to keep track of all the products and procedures involved. A fully-automated system will guarantee that the right product gets supplied to the right receiver.
Sensors on the system build their nodes on the blockchain, and smart contracts allow tracking of a product's location and possession at any time. A smart contract constantly updates the location status until the goods are delivered. This guarantees that the goods are in order from the time of initial shipment till delivery.
5. Ethereum network
Currently, the Ethereum network is the largest platform for building and deploying Smart Contracts. A smart contract in Ethereum is built and assigned at a specific address over the Ethereum blockchain. This makes the code of that contract public since it was registered on the public blockchain. The code is transparent and eliminates the need for a middleman in many use cases, making it efficient for organizations and businesses.
6. Crowdfunding
Crowdfunding is another popular application for smart contracts. If one is looking to crowdfund or sell a coin to one's clients, smart contracts like ERC20 Tokens, existing on the Ethereum network, are a good option.
Conclusion
Smart contracts can make the world better, a place that is free of unnecessary charges and fraud. It can reduce money laundering, delays, and expenses on many things. Smart contracts have unlimited potential, and as technology develops more, some jobs become unrequired since smart contract codes can take over.