In 1994, Nick Szabo (a cryptographer), came up with the idea that contracts can be documented in the form of computer code. This contract 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). The problem was that back in 1994, blockchain technology didn’t exist. But it does now! Now, numerous blockchain platforms enable secure, efficient, and fast smart contract solutions development, like Etereum, Hyperledger, Corda, Stellar, and more.
A smart contract is a two-person arrangement in computer code format. They are running on the blockchain, so they are stored in a public database, and can not be changed.
The transactions that occur in blockchain-processed smart contract solutions, meaning they can automatically be submitted without a third party. It means that there’s no need to count on anyone!
The transactions only occur when the terms of the agreement are met — there is no third party, so there are no confidence issues.
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 Bob and Alice agreeing.
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 have to pay the third-party companies lots of fees. Including the mortgage, a lawyer, and a broker for the property.
When the terms of the agreement are met, smart contracts are automatically executed. That means no need for a third party, such as a bank, broker, or government.
As stated earlier, we can decentralize smart contracts because of blockchain technology so they are fair and trustless. Decentralizing means that one central entity (such as a bank, broker, or government, etc.) does not regulate them.
The blockchain is a decentralized database run by several computers (so-called nodes) that belong to many different individuals. Only no single person or organization has power over it because of this.
That means it’s virtually impossible to hack it — if they were to target the blockchain or the smart contracts that run on it, the hacker will need to access more than half the nodes. Smart contracts will then run securely and instantly, without anyone being able to change them!
Once we pay deposits for goods or services, we can feel free-there is no confidence involved.
Smart contract solutions and the blockchain itself provide customers and producers with considerable flexibility and transparency. For smart contracts, there is no need for legal intermediaries, which enables easier interactions with customers.
Safety and Trust
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, smart contracts are saved and executed specifically and instantly. Furthermore, these agreements are encrypted cryptographically, and thus, cannot be lost or manipulated easily.
Because no intermediaries are involved in the contract, all parties involved in a smart contract can remain confident that the contract is conducted in a 100% impartial and objective manner. There is no chance of fraud, abuse, or unlawful alteration.
Time and Cost Reduction
We no longer have to waste hours and papers reading smart contract documents manually. We automate activities using software code, thus cutting the number of hours required for business process execution. It also leads to major cost savings, as there are no intermediaries like banks, escrow services, and even legal services involved. In reality, a study by McKinsey revealed that by 2021 businesses would save at least $ 50 billion by using blockchain in B2B transactions.
Smart contracts can allow businesses to effectively automate and standardize activities like record-keeping, cash flow, and performance under one platform.
Also, Read | Real World Examples of Smart Contracts Use Cases
When it comes to smart contract solutions, there are almost infinite use cases in business and daily life. Let us tell you about the most exciting implementations and show you how the implementation of smart business contracts is already changing the environment in which we work.
When you’re trying to make a transfer of money, you need to pay a fee, pay a percentage of the amount you spend, and then wait for a few days while the transaction is processed. While the modern banking system operates relatively smoothly, it is hard to ignore its imperfections. No intermediaries are required for Smart contracts. Thus, you do not pay any fees. Since there is no bureaucracy involved, transactions are getting fast and cheap. Furthermore, the accountability offered by the blockchain reduces the possible risks of fraud in banking.
If you get into a minor accident with a vehicle, the first thing you’d care about is an insurance fee. If the incident is not your fault, you foresee repair costs to be paid by the culprit side. But what if the person disputes their responsibility, what should you do? The odds of getting a refund aren’t motivating that much. May the car be equipped with an IoT device reporting its location, speed, accident time, you would have no reason to be concerned. If you’re right, the blockchain data will confirm your words, and you’d automatically get your reward.
Also, Read | Smart Contract Solutions for On-Demand Car Insurance
In particular, cross – border real estate transactions are way too difficult for a reasonable person to manage. You don’t want to participate in months of legal proceedings, document signing, and other bureaucratic complexities linked to ownership transfer.
The pain is easy to prevent with the aid of smart contracts for real estate. The property’s decentralized registry would allow you to purchase and sell a property without intermediaries, and pass ownership rights in minutes. You ‘d find the apartment you want in a couple of taps, pay for it and get the evidence that you’re the new owner. You don’t even have to face the seller there.
You never know 100 percent how new it is when you come to the store to buy seafood. It could be published, it just arrived from Denmark. Your choices aren’t that great-you may or may not believe it.
Combined with IoT devices, smart contracts are set to make a revolution in the logistics and supply chain. Tracking the way products pass before they arrive at the retail spot is made automatic and transparent with their help. You know where the goods are at any given moment, the conditions in which they are held, and when they will arrive. It does not only refer to foodstuffs. Such technology can be used for example to track retail products, responsible energy, oil, gold, etc. Sellers become more trustworthy thanks to the blockchain and the chances of fraud decrease.
Violations of piracy and authorship are significant concerns within the entertainment industry. Musicians, musicians, authors, and other artists are robbed of their royalties because their intellectual property is dishonestly abused.
Having a transparent authorship register on a blockchain is an innovative instance of how smart contracts will change the state of affairs today. For example, when someone downloads a picture of your novel or stock, you immediately get a refund. Also, your rights are securely registered, and no-one could alienate them.