A smart contract is a term that is ubiquitous in the realm of blockchain technology. While most people on the planet are familiar with how a traditional contract works, the mechanics of a smart contract may not be as familiar.
Blockchain is a noteworthy technology for multiple reasons. It’s the backbone behind the most popular cryptocurrencies and enables strategic development across various industries. These industries include web security, logistics, and even trade finance. To gain an understanding of how blockchains work in these industries, it's important to have an understanding of what is a smart contract.
One of the best things about public blockchains is that they are decentralized systems. One that exists between all of the people that are participating. Intermediaries (or ‘middlemen’) are not a contributing factor, so it saves you a lot of time and money and prevents needless conflict. Overall, many consider blockchains to be faster, cheaper, and much more secure than most other legacy systems. It is for this reason that various banks and governments are incorporating the technology as we speak.
What is a Smart Contract?
Smart contracts are a type of self-executing contract with the terms of agreement residing in the lines of code. To be more specific, these agreement terms are those that are between a buyer and a seller. Both the code and the agreements exist across a distributed and decentralized blockchain network.
These contracts allow for the execution of transactions and agreements among dissimilar, anonymous parties. On top of that, it is without a need for a central authority, a legal system, or any external enforcement. They essentially make all transactions traceable, transparent, and above all else, irreversible.
The primary goal of these contracts is to boost the overall transparency of the transaction. All the while it reduces fees and eases any potential for conflict over a lack of performance. Unlike traditional contracts, however, smart contracts have absolutely no room for interpretation. This is due to all of the terms being predetermined and conditions executed automatically. Therefore, there is immediate enforcement by the contract itself.
Benefits of Smart Contracts
The benefits that can come from using a smart contract include:
- Turning legal obligations into more of an automated process
- Guaranteeing a higher-level degree of security for parties involved in a contract
- Reducing the conventional reliance on intermediates and any other form of middlemen
- Lowering transaction costs
Smart contracts have the potential to upset a great number of industries. Use cases are often found in fields such as prediction markets, banking, insurance, energy, telecommunications, and education. It can even be found in the art world and both the music and film industry. Smart contracts use is appropriate and beneficial for an assortment of projects, ranging in complexities.
Services that offer time-stamp transactions are a good example of how smart contracts can be incredibly useful. This would be applicable to art registries and governmental registries that distribute documents. These documents could include birth certificates, land titles, and school and university degrees.
Variety of Smart Contracts
Smart contracts are available in a number of different forms, each of which has desirable properties that can be applicable to certain circumstances:
- Digital value exchange: The act of sending a certain type of cryptocurrency (ex. Bitcoin) from one family member to another.
- Smart right and obligation: When a consumer purchases a digital content stream.
- Basic smart contract: A landlord locking out a tenant from their apartment due to the fact that they are not paying.
- Multiparty smart contract: When a merchant is looking to sell their house lend the potential buyer the funds.
- Autonomous business unit that is distributed: A corporation unit issuing its own bonds and any buyer can monitor the payments by way of a communal ledger.
- Distributed autonomous organization: Self-driving trucks that carry out peer-to-peer deliveries, pay the local toll road fees and also purchase local electricity.
- Autonomous government that is distributed: Settlers that belong to a once desolate area can code their own self-enforcing government services.
- Distributed autonomous society: Multiple groups of settlers hailing from different areas establishing self-enforcing trade agreements.
Future of Smart Contracts
There is no shortage of possible applications where a smart contract can be deployed to not only provide more trust and seamless execution of contract criterion but also to eliminate redundant positions and middlemen along the way.
When it comes to smart contracts, we are hard-pressed to find a better alternative with so much versatility. There is of course a possibility of smart contracts evolving over time to become better, which is the natural progression of technology as a whole. Until such a time, however, we can make use of this incredible technology in our world in the present age.