By Matheus Darós Pagani
CEO of 4CADIA Foundation
Smart Contracts are the future. We are entering the Age of the Code and very soon the whole market will feel the effect of change.
This instrument is perhaps the most promising to date created in the blockchain revolution. That’s because, unlike cryptocurrencies, it doesn’t carry speculation about the financial market and its volatility. It is a tool that simply makes the process of register authentication simpler and safer, reducing costs, eliminating intermediaries and fostering trust through transparency.
What are Smart Contracts
Smart contracts use blockchain to facilitate the registration or even the exchange of properties, values, information or any other asset that can be digitally modeled. The use of a decentralized peer-to-peer network, protected by cryptography and incentive mechanisms, allows these transactions to be established without the need for intermediaries, increasing the speed, trust, security and transparency of the relationships.
The benefits of smart contracts
Traditional contracts are established through a third party, or intermediary, responsible for the authenticity of each party’s documents, also acting as a reinforcement to guarantee and/or force their enforcement under threat of sanctions. In the case of the modern world, the State appears as the intermediary par excellence.
However, this task is usually delegated to a series of agencies with distributed powers, which makes the contractual relationship costly, time-consuming, bureaucratic, unreliable and dependent on the physical presence of lawyers and the parties involved.
Smart contracts, in turn, can be signed in a matter of seconds, do not require the presence of lawyers, cost much less than traditional contracts, can be signed virtually and eliminate most of the bureaucracy involved in the transactions. In addition, they are safer, more reliable and allow data storage.
Below are the 5 uses of smart contracts that will revolutionize the way we think in the market:
Trade Finance
Trade finance is a process whereby a financial institution grants a credit facility to ensure security over the transfer of assets. Imagine a company in Brazil wants to sell a product to a German company. The German company may hesitate to issue the payment before the product arrives and the Brazilian company may be afraid to send the goods without guarantee of payment. This type of deadlock is usually solved by the issuance of a letter of credit by the bank, which works as a guarantee that the payment will be made.
This type of transaction has found wide applicability for smart contracts. Santander Innoventures has already stated that it expects to save up to $20 billion by using the technology by 2022, and has already started investing on solutions for digital securities using blockchain.
Property Ownership
Relatively safe land and other property registration systems are quite recent in human history and do not yet cover most nations. Smart contracts can be used to register the ownership of various types of assets, including real estate, buildings, land, farms, telephones, watches, etc.
This registration process works in a similar way to a decentralized ledger. The information for each transaction is transformed into a hash, which is stored permanently. This allows the entire history of the property to be traced, without the possibility of manipulating the titles. The public ledger can be consulted at any time to check the validity of any property claim. Thus, it is possible to eliminate intermediaries such as notaries, brokers, lawyers, among others. Sellers can handle the transaction completely autonomously, and this greatly reduces business expenses.
One of the most successful projects underway in this area is in Georgia, led by the National Land Administration in partnership with the Bitfury start-up and institutional support of ICZM. By 2018, 1.5 million property titles had already been published in Blockchain. There are other pilot projects in Honduras, Ghana, Rwanda and Sweden.
Registry and Identity
Nearly every industry in the world can use smart contracts to help improve the speed and security of their registrations. Blockchain allows a person to become a de facto owner of your data, choosing what you want to cede and the price you pay for that cession, without having to let your private information become the object of trade by third parties.
There are several sectors that are already being affected by this and others that will change very soon. Where it is interesting to establish control over the privacy and security of records, eliminating intermediaries and reducing costs, Smart contracts operate as an important input for transactions.
Many solutions have emerged in the last years to address this field. uPort and Civic are the most daring projects to handle identity in public blockchains, while Hyperledger Indy provides a powerful set of tools and libraries for enterprise-grade identity solutions.
Medical Research
Hospitals and specialized clinics usually take extra care about their patients’ information. This is due to outdated market reservation practices, when organizations do their best not to lose their clientele to competitors. As a consequence, many patients are deprived of quality care when they need to change city, professional and institution for any reason.
Private blockchain applications can solve many of these problems. In private networks, involving several institutions, none of them would keep patient data, which is identified by a hash that would constitute their unique identity on the network, whose privacy can only be accessed with their permission.
The medical research industry could also benefit from this type of change. Highly sensitive data such as patient records can be transferred between departments/research centers after being securely encrypted using blockchain technology. Data that includes test results and new drug formulations that need to be kept safe can be secured through the use of smart contracts, should any of this information need to be shared with a third party, for some justifiable reason, with the permission of the registration key holder.
Estonia is the first country in the world to operate a national health registration system using Blockchain. 95% of the medical data has been uploaded since its implementation in 2005. In the private market, projects such as the one developed by the eHealth Foundation in partnership with Guardtime in 2016 introduced a large-scale network for information authentication without the need for a centralized authority.
Supply chain
Supply chains have benefited from the use of smart contracts stored in blockchains. The Internet of Things is already being used throughout the supply chain to record every step a product takes. With blockchain, it is possible to eliminate many problems of theft, fraud or depreciation of products by tracking the precise place where goods have disappeared or been tampered with.
This also includes advantages such as knowing the inventory level in real time and timing how many days, hours or minutes the products go through each step of the process. For supply chains operating at several different locations or companies, smart contracts could do all this and even start reopening automatic orders, and paying for orders already received.
In the case of the food market, IBM Trust Food is certainly the most famous application in this market. Based on the Hyperledger Fabric protocol, which has conquered industry giants such as Carrefour, Nestlé, Dole Food, Kroger and Unillever, the Trust Food is already a giant. The solutions are based on the creation of a digital record book of transactions or interactions, from the date of packaging, temperature of the product at the time of transport, until the moment it is placed on the shelf. Network members look for ways to leverage the use of the blockchain to improve supply chain performance in areas such as efficiency, freshness, waste reduction and certification verification.
Conclusions
For those who are tired of just thinking in terms of cryptocurrencies when it comes to blockchain, looking at the world of smart contracts is invigorating. The whole concept of smart contract applications will revolution the way we live our lives and that must be something far more revolutionary than Bitcoin. Just as the Internet was born as a technological innovation for the few, today we cannot live even one day without having contact with some of its applications. In the same way the innovation brought by smart contracts blockchain technology can revolutionize the world as we know it today.
Soon, it will no longer be the Law, but the architecture that will guide our social relations. Architecture means the hardware or software arrangement in which the network is inscribed. With blockchain, the actors of the network assume that all information is immutable and that the system is sovereign to define how much value each record has based on the code agreed between the parties. To use the expression of Lawrence Lessig, Code is Law.
Originally published at https://www.linkedin.com.
