How can smart contracts revolutionize business processes?
The introduction of smart contracts has increased the potential of blockchain technology. Blockchain has become more than a distributed ledger. Smart contracts help harvest the power of blockchain for any task. The possibilities are just limited by the imagination and skill of the coder. Smart contracts will add a lot of use cases to blockchain.
What is a smart contract?
A smart contract is a piece of code written on a blockchain network. Multiple conditions and actions are mentioned inside the code. When a certain condition is fulfilled, the smart contract executes. It will trigger the desired actions. Smart contracts execute automatically and autonomously. Once live on the blockchain, external interference is impossible. Smart contracts typically use an oracle. Oracles are sources of information about weather, stock prices, and news. With smart contracts, one can build casinos, insurances, and logistics management systems on the blockchain.
An example of a smart contract
Party A (Anna) and party B (Bob) want to enter a swap. Anna pays a fixed rate on the nominal every six months to Bob. The rate is decided during the initiation of the swap. Bob will pay a floating rate on the nominal to Anna every month. A smart contract is written for the above-mentioned conditions. The smart contract automatically transfers money from the wallet of Bob to Anna. This is done at the beginning of every month based on the floating rate. This floating rate is provided by an oracle. At the beginning of the sixth month, the smart contract transfers money from Anna to Bob. This is based on the fixed rate (Figure 1). As the execution happens automatically, both can trust that it is fair.
Advantages of smart contracts
There are three major advantages of smart contracts. They are instant, affordable, and safe.
The algorithm runs as soon as a condition is met. There is no need to wait for the various parties or human intervention. This increases efficiency and productivity.
Smart contracts remove middlemen from various processes. Such middlemen are banks, escrow, and legal services. This, in turn, decreases the overall costs of a project.
Smart contracts are implemented on a blockchain and stored across the network. Any attempt to alter or modify their content would require the alteration of the contract in the majority of the nodes. The processing power required for that task is extremely large. This ensures that transactions occur as desired.
What industries could it impact?
We have described an example of how smart contracts can impact the financial industry. Various processes in the financial industry can be automated. But these effects are not just limited to the financial industry.
Real estate — Contracts for properties could be written on a blockchain network. This could save time for all involved parties. It eliminates the necessity to check the contents of the contract with numerous parties separately.
Healthcare — The insurance details of individuals can be saved on a blockchain. During an emergency, medical staff can access the information. They could also charge for services directly by triggering a clause in the smart contract. This is efficient and saves important time during an emergency.
Supply chain and logistics — With the introduction of the Internet of Things (IoT), the supply chain and logistics industry has become automated to a large extent. Blockchain can be connected with IoT to automate the production, storage, and transport of goods. One can verify a good’s exact origin and route to the destination. This could ensure the authenticity of a product and reduce delays.
Entertainment — Many artists get royalty payments. As time passes, the original owner of a song or movie may be difficult to determine. Details stored on a blockchain would make it easier to find the owner. A smart contract can be used to generate a payment stream. When requiring consensus, a smart contract can collect votes from all owners.
Conclusion
The potential use cases of smart contracts in business processes are endless. Over time the benefits become more apparent and costs dwindle. As a result, more organizations are considering this option. The question is not if smart contracts will be accepted. The question is just when they will be widely used.
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