Smart Contract Explained in Simple Words: What They Are and Why They’re Useful?
Technology has played a crucial role in making humans intelligent, accurate, and advanced throughout the history of humankind.
Smart contracts are self-executing contracts that do not require any third party to rely on, like a bank or financial institution. In simple words: smart contracts remove the need for trust and are very different from traditional contracts.
What are smart contracts?
A smart contract is a set of commitments, defined in digital form, becoming a contract that gets executed automatically when the contract terms match. Smart contracts are highly logical, act as programmed, and cannot be changed once deployed on the blockchain network.
So, we can say that the advantage of the smart contract is-
- The speed of execution.
- Reliability and confidentiality.
- Automation of the procedure.
What is the need for the smart contract?
The human aspect is one of the most significant junctures of failure with traditional contracts. Traditional agreements or contracts have a higher execution time because many mediators and their intermediary layers take many days.
The smart contract executes a specific action or delivers as per logic embedded in its code, thus removing any dependency on humans and achieving execution in a fraction of the time. It achieves secure peer-to-peer transactions without requiring any third party or financial institution that provides trust.
Why are smart contracts smart?
Let’s take a look, traditionally, at how contracts used to happen. Suppose two parties, E and F, have to get into a contract; they will utilize the services of a third party they have to trust and execute the contract. Smart contracts and blockchain technology remove the dependency on such third parties. It automates the implementation of such smart contracts if we compare traditional versus new ones. Traditionally, we used to have banks, financial institutions, government, lawyers, or any other outsourcing party whom we could trust. In smart contracts, we do not require any third party, and we don’t need any intermediate execution that provides a trust factor, making it a trustless platform.
Why are smart contracts useful?
Smart contracts can help in multiple ways. They can help reduce human error in contract management and the time to process contracts because they are automated. Smart contracts can be useful to both businesses and individuals. Businesses can use smart contracts to automate the process of managing sales and distribution of products. Individuals can also use smart contracts to manage insurance claims, pay for groceries, and other uses.
Trust & Transparency
Smart contracts transparency is available 24/7 online, and anyone can go and review audits and validate the transaction executed by the contracts. Suppose any remittance of either of the parties has to happen. In that case, it is a manual process approval workflow process, and these processes take time under the traditional contacting system. However, in a smart contract, as the conditions are predefined, it gets executed quickly.
Speed & Efficiency
Smart contracts take just a matter of minutes. It gets executed because it is an automated programmable running on a computer, and it has a predefined condition for the settlement.
Decentralization & Traceability
Thus, Ethereum smart contracts are on a public blockchain; anyone can track their transfer and other information. Achieving is a complex problem for traditional contracts as most transactions are paper-based or the records are maintained offline.
Maintaining and identifying the traceability provenance of all transactions in a traditional contract becomes challenging. In a smart contract, it gets easy as all the projection has happened through the smart contract. There is 100% traceability available from the providence perspective. You can easily trace the transaction from its day one to the point of origin till the present and achieve it automatically.
Safety & Security
Protect your privacy with smart contracts. All transactions are bound publicly to a distinctive cryptographic address for you to protect your privacy from observers.
Let me share a couple of industries where blockchain solutions are impacting the most –
Supply-chain, a distributor can function in a smart contract to sell and distribute products worldwide. It can also track the product’s position and transaction as they move through the supply chain. Smart contracts developed and deployed by blockchain experts can be used to provide a decentralized solution for end-to-end supply chain management.
Financial services like lending and borrowing can use for digital contracts to transform conventional financial services.
Healthcare can use smart contracts by generating a private key. Blockchain solutions can easily store patients’ encoded health records and protect their privacy.
Scientific research smart contracts will help real-time communication about research. It is essential between institutions to avoid the “silo” effect.
Other Use Case
- Government Voting
- Decentralized gaming
- Insurance Claim
- Record Storing
- Trading Activities
Blockchain-based Smart Contracts
A blockchain is a decentralized distributed ledger that records transactions and other data. Since the blockchain is a distributed system, the data is available to all participants in the network. It is also transparent, which means that the details of the transactions are visible to the participants. A smart contract executed on the blockchain is called a blockchain-based smart contract.
Main languages to write smart contracts:
- Solidity
- Rust
We might see the acceptance of smart contracts in the mainstream only when we can overcome all the challenges like new technology; then, it can revolutionize many industries by seeing the upcoming areas where the future hold for smart contracts.
What is KGT?
KGT is a blockchain and software development company that provides futuristic application solutions with Blockchain technology and Web3. For the past three years, KGT has provided blockchain consulting and development services that are transforming businesses to the next level.
Contact us: https://www.kgt.solutions/contact
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