In 1994, a cryptographer named Nick Szabo came up with the idea of documenting contracts in the form of computer code. These contracts will automatically be triggered upon the fulfillment of certain conditions. This idea could theoretically remove the need for trustworthy third-party companies such as banks. Today, blockchain technology enables secure, efficient, and fast smart contract solutions. Multiple platforms offer smart contract development like Ethereum, Hyperledger, Corda, Stellar, and more.
In this article, we will explain more about these programs, their benefits, and how businesses can use them for efficiency.
A smart contract is a two-person arrangement in computer code format. It is stored on a blockchain, which makes the program immutable. The program executes itself after certain predetermined conditions are fulfilled.
Smart contracts solutions can enable money exchange, service delivery, privacy protection, and more. Smart contracts save time and remove third-party involvement by automating various processes. These contracts, therefore, promote a trustless environment.
Businesses can develop, distribute, manage, or update these programs in a variety of ways. They can integrate smart contracts into different payment mechanisms, digital exchanges, and more.
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To find the answer to how smart contract solutions work, let's start by investigating how you can use a smart contract:
Imagine Bob wanting to purchase the house from Alice. Using a smart contract this agreement is built on the Ethereum blockchain. This smart contract includes an agreement between both parties.
The arrangement will look like this in the simplest terms: "If Bob pays Alice 300 Ether, THEN Bob will obtain house ownership"
If this smart contract is in effect, it can not be altered — ensuring that John will feel free to pay Alice 300 Ether for the property.
Without using a smart contract in this case, Bob and Alice will require third-party involvement, which will cost a hefty amount. It will include the mortgage, a lawyer, and a broker for the property.
Since a smart contract is a self-executing program, Bod and Alice will not have to invest in an intermediary such as a bank, broker, or government.
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Blockchain technology can decentralize smart contracts, making them fair and trustless. Decentralizing means that one central entity (such as a bank, broker, government, etc.) does not regulate them.
The blockchain is a decentralized database run by several computers, called nodes, that belong to many different individuals. So, no single person or organization has power over the data. This aspect of blockchain makes it nearly impossible to hack.
Hackers will need to access more than half the nodes if they wish to target a blockchain network or smart contracts that run on it. So, smart contracts run securely and instantly without anyone altering them.
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Smart contract solutions and the blockchain provide customers and producers with considerable flexibility and transparency. For smart contracts, no legal intermediaries' involvement enables easier interactions with customers.
Smart contracts take advantage of blockchain's protection to build an enhanced degree of confidence that conventional contracts can't provide. In a blockchain network save smart contracts and enable their instant execution.
Furthermore, blockchain technology encrypts these agreements cryptographically, and thus, one cannot easily manipulate them.
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A smart contract does not have third-party involvement and all the network participants have their encrypted records. So, all parties involved in a smart contract can remain confident that the contract is conducted in a completely impartial manner. There is no chance of fraud, abuse, or unlawful alteration.
The automation process by smart contracts saves plenty of time and money. Parties no longer have to waste hours and papers reading smart contract documents manually. Smart contract solutions cut the number of hours required for business process execution.
They lead to major cost savings as there are no intermediaries like banks, escrow services, and even legal services involved.
Smart contracts can allow businesses to effectively automate and standardize activities like record-keeping, cash flow, and performance under one platform.
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When it comes to smart contract solutions, there are almost infinite use cases in business and daily life. Let us explore the most exciting implementations and how these smart contract implementations are changing the businesses environment:
While the modern banking system operates relatively smoothly, it is hard to ignore its imperfections. When you're trying a money transfer, you need to pay a fee and pay a percentage of the amount you spend. Then, you have to wait for a few days while the transaction is processed.
On the other hand, if you use smart contracts for money transfers, then you don't need to pay any fees. Since there is no bureaucracy involved, transactions are fast and cheap.
Furthermore, the accountability offered by the blockchain reduces the possible risks of fraud in banking.
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The insurance industry often lacks people's trust. Even insurance companies face problems as many policyholders deceive insurance providers with false claims to get payouts.
Smart contracts insurance can build trust between an issuer and its policyholders. They have software algorithms that predetermine all insurance payout scenarios, eliminate administrative barriers, and autonomously execute contract terms. So, both parties cannot manipulate any data.
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In particular, cross-border real estate transactions are way too difficult for a reasonable person to manage. No one wants to participate in months of legal proceedings, document signing, and other bureaucratic complexities linked to ownership transfer.
Smart contracts can remove these pain points in the real estate sector. The property's decentralized registry would allow individuals to purchase and sell a property without intermediaries and pass ownership rights in minutes.
Individuals would find the apartment they want in a couple of taps, pay for it, and will immediately get ownership of purchased properties. The entire process won't require a meeting with sellers.
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Combined with IoT devices, smart contracts can make a revolution in the logistics and supply chain. They make the tracking process of the products automatic and transparent.
With this combined technology, one will be able to detect the locations of goods at any given moment, their surrounding conditions, and when they will arrive.
Businesses can use such a technology to track retail products, responsible energy, oil, gold, etc. It decreases the chances of fraud, making sellers more trustworthy.
Violations of piracy and authorship are significant concerns within the entertainment industry. Creators such as musicians, authors, and other artists face issues concerning their royalties.
Smart contracts can create a channel that pays royalties to the right parties in the shortest time possible. For instance, it will bypass the need for a record label in the music industry for safe and quick transactions.
Creators can use smart contracts to protect their copyright by making a database of registration and contact details. It becomes easier for authentic entities to contact creators for buying or using their bodies of work.
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In a nutshell, smart contracts are powerful tools to create trustless, transparent, and automated systems. Businesses can use them in real estate, supply chain, insurance, and other fields. If you're interested in developing these computer programs, then contact our blockchain developers.