Generally, when two parties sign a contract, they use the administrations of a confided-in third party to execute the agreement. But with rising Digital Innovations, these days are gone and the days of smart contract backed by blockchain are in!
What are Smart Contracts?
Smart contracts is said to be an advanced form of digital standard paper contract that naturally confirms satisfaction and implements and plays out the conditions of the agreement.
Smart contracts came into being in 2008 when blockchain came into existence. But the idea was proposed in 1994 by Nick Szabo, an American PC researcher and analyst of computerized monetary standards.
Let us take a simple example. Consider buying a Travel Token for the Metro Train from a vending machine. You simply push in cash/punch in a debit card and the machine pushes out the token. The whole process takes place in minutes and that too without any manual assistance from a third party.
In short, a smooth process without involving a middleman. No wastage of time, no investment needed for hiring the middleman. And similar is a smart contract between two parties. So we hope now you have understood what smart contracts are.
How Do Smart Contracts Work?
The terms of the contract are transferred into a programming code. This code is nothing but lays conditions for how future transactions will take place.
The smart contract code is stored in a blockchain. Post that its replication between the contracting parties is done to form a network within an organization.
After the terms and conditions of the smart contract are verified by all participating computers on the blockchain network, post that transactions as per the smart code begin to get executed.
Benefits of Using a Smart Contract
Highly accurate & transparent
Being 24×7 available as a digital entity, the smart contracts can be viewed, reviewed, questioned, audited, etc by anyone who has permission to access the blockchain network in the organization. Thus, making a smart contract a highly accurate, time to time reviewed and also a transparent entity.
Autonomous rapid backup
Each transaction via a smart contract can be archived, thus making the whole chain of transactions (from day one) highly accessible for reviews anytime needed. In short, being a digital entity, smart contracts platforms have the power of auto-generation of the entire history of the contract right from its origin to the latest transaction.
In short, if you lose your academic certificates’ hard copies, but you are in contract with the academic institutions, then all your data is safe.
No middlemen involved, saves lots of time
The sheer number of mediators and middle layers engaged with the execution of a conventional agreement is very time taking, frequently requiring days or even weeks. But crypto smart contracts creation can be expected within minutes, as they are digitally mechanized and programmable, running on a PC under predefined conditions, without involving any middlemen.
Once the middlemen are off the block, then there is no question of extra money to be paid. And this automatically brings down the cost of investment. You just have to pay for the infrastructural charges of the blockchain network, that’s it.
Tight security & high privacy
In traditional contracts, due to middlemen involved, both privacy and security are at high risk because the paper contract exchanges various hands. But in crypto smart contracts there are no middlemen involved; so no question of privacy being compromised.
Moreover, cryptography, public key, and private keys keep the smart contract tightly secure, all the more because one cannot modify the data once a contract code is laid.
Being digital is the other name of being efficient. Using a crypto smart contract means you are creating business efficiencies at par with the global competitive scenario. And how is that happening, we will detail the same using the examples below.
Six Best Smart Contracts Use Cases
If the personal health details of a human are coded into a blockchain as a crypto smart contract, then that human can get his/her medical supplies on time. This will be a boon, especially in the case of old age people, who don’t have access to chemists and other health facilities all the time. The account will be private key protected so no question of privacy leak.
A lot of time is wasted in paperwork when a customer wants to claim insurance; at times it takes months to years in India. If the smart contract is created between a company and the consumer, the consumer pays his insurance fees in crypto currency and the company adds the insurance value in crypto currency as well.
At the time of need, when the consumer submits the insurance claim, the automated blockchain transfers the money to his/her account. No wastage of time, hassle-free automated transactions.
We will explain this with a very simple possibility. The government load of maintaining ledgers after ledgers and settling cases of the PSUs; settling pension cases, etc. all can be done via smart contracts. The employee joins via a smart contract.
Each year his/her share of pension is deposited onto the smart contract blockchain and when the person requires, an auto-generation of pension starts for the human. No third party involvement, least possible chances of corruption via bribery demand. Isn’t that a great idea?!
ICOs or Initial Coin Offering
It is a kind of blockchain generated crowd-funding system if you need to generate funds to start some project of your own.
Let us understand how it works. You create a smart contract and then you have to create a token, say XYZ for that smart contract. Suppose this is a Dogecoin Blockchain. And you value 10 XYZ tokens for one DogeCoin. And your project needs say 10, 0000 Dogecoins. So you will need to code the contract that One Dogecoin = 10 XYZ tokens.And also code 100,000 XYZ tokens onto the smart contract.
Once all these are sold, you will have your required 10,000 Dogecoins and the funding will stop automatically. No middlemen or an NGO is needed, which takes an intermediary commission. No case of more-than-needed money. Simple, transparent transactions.
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As we have already explained in the benefits of crypto smart contracts, when two parties enter a business agreement, things become more efficient and faster.
Moreover, when each employee deployed on that very business, is into a smart contract with an organization, then right from the work responsibilities to the assessment of the employee, to even disbursing perks, all are an automated process.
The headship can look into the progress at any time. There is no need for paperwork or thick ledgers. In short, the whole process becomes smart and effective par excellence.
What if governments employed smart contracts in the voting system? There will be no ballot boxes, no voting machines employed by middlemen and thus no question of allegations of voting being rigged – that erupt all the time.
And with smart contracts, one will get the one-time password to vote online and thus ensure a 100% turnout someday, where everyone will have the ease of voting despite any disability. No need to queue up, no wastage of time and money in setting up the whole convoy and management staff.
It is still time when such smart contracts will become a normal day reality in most of the nations, but when they come into existence, we would recommend that you rely on these for giving your business an edge above others.