Smart Contracts
These days, smart contracts are extremely popular. But what exactly do they do, and what issues do they address? Here we are going to discuss its relevance to real-life situations.
Before moving to smart contracts of the Ethereum blockchain, let’s take a look at contracts in general. What are they and what are some concerns associated with them?
Contracts are typically used to specify a deal or an agreement between two (or more) parties with a number of requirements that must be satisfied. When two parties are holding any mutual agreements as a part of collaborative functioning, it requires some kind of acceptance from both sides, some common terms that all parties should obey. They also outline all the repercussions that will be applied in the event of a breach. That means if the conditions/ requirements are not met properly, there will be a set of procedures to be followed, as a part of compensation/ punishment, which is often described in the contracts.
On every smallest of the things in our life, we directly or indirectly hold a contract. Some contracts are verbal, some are written and some are not worthy of even mentioning, despite, all coming under some kind of contract technically.
For instance, from booking a cab to buying groceries, to taking a loan, in every sphere of life we are dealing with some kind of contract or simply some mutual understanding between two parties or individuals.
In some contracts in businesses and the professional spheres, One of the primary issues in a contract is whether or not one or both parties are willing to keep their word in a legal contract. That means in order to go for a deal, things are well documented and legalized beforehand. However, despite this much documentation, some situations often become the reason for ambiguity and discrepancies. Here smart contracts came into play.
Similar to a typical contract, a smart contract operates with automatic contract enforcement. Smart contracts are computer programs that run exactly as their developers have coded or programmed them to. Smart contracts are enforceable by code, just like a conventional contract is by law.
Now, what is this code we are talking about?
The concept behind smart contracts is rather straightforward. It’s just a kind of program or a simple algorithm. They operate using straightforward logic, such as IF-THEN, for example, let there is a grocery shop, which places an order from a wholesaler.
Now the amount of money will be sent to the wholesaler by the shopkeeper ONLY IF he delivers the groceries to him according to their mutual deal.
On the other hand, the groceries will be given to the shopkeeper IF he transmits a specific amount to the wholesaler right after delivery.
The amount specified in the contract will be transferred from shopkeeper to wholesaler, ONLY IF HE COMPLETES THE WORK.
And this is the simple logic behind the program of a simple smart contract that gets coded in a computer program on these IF-THEN conditional statements.
A smart contract has permissions and details defined in code that need to happen in a specific order to result in the agreement of the terms stated in the smart contract. In the contract, deadlines may be introduced due to time restrictions.
Since this contract is a part of the blockchain, it is transparent, unchangeable, reasonably priced, and decentralized.
Every smart contract has a blockchain address. If the contract has been broadcast over the network, it can be contacted using its address. Smart contracts aim to remove any kind of ambiguity in contracts through their technologically advanced methodology.
Applications for smart contracts
Finance includes lending, borrowing, and investing. They can be used in real estate, healthcare, gaming, and even the configuration of entire corporate structures. Smart contracts are able to lower expensive trade finance errors, safeguard private medical information in healthcare, track real estate property information, reduce claims fraud in the insurance sector, facilitate Election convenience and integrity improvements, and lowers expenses in the legal sector.
Other uses for smart contracts include supply chain management, peer-to-peer transactions, product development, and stocktaking.
The future of automation is writing smart contracts on blockchain platforms that automatically enforce business logic. The applications will save both time and money.
Now let us familiarize ourselves through this concept with some real-life situations.
For instance, a person wants to buy an apartment. In this case, a smart contract states that ownership of an apartment would transfer once a specific amount has been transferred to the seller’s account. Once the complete amount is transferred, the property papers will automatically set the name of the new owner, without any delay. It can also work in resolving ownership disputes. This complete procedure can be coded(algorithmically set) to avoid any human intervention.
Thus it reduces the amount of money given to the middleman in real estate transactions and divides it among the parties directly involved.
Also, many late or postponed choices can be streamlined and automated with the help of the blockchain application in management. Each judgment is open and accessible to all parties with the necessary authority.
Let’s take another example,
A blockchain can be used to deploy a smart contract that records car ownership and maintenance. For instance, the smart contract may mandate car maintenance every six months, failing to which would result in the suspension of a driver’s license and this can be easily coded in a smart contract algorithm.
What makes these smart contracts smarter is that the full audit trail and all contract transactions are accessible and preserved in the blockchain in chronological order. The nodes in the network have the ability to identify smart contract violations, and any such attempt is flagged as invalid and not recorded in the blockchain.
Smart contracts can be used on many of the platforms that have recently emerged such as Nxt, Ethereum, Bitcoin, etc.
