Smart Contracts —A Paradigm Shift
Solving serious problems, such as trust issues & bureaucracy
Smart contracts could finally be that one thing to get us rid of paperwork, dossiers full of contract papers, and computer folders or cloud drives full of excel sheets. Smart contracts are meant to be a complete shift in the way we do business and a totally new paradigm.
As you will see, smart contracts are based on a stupidly simple concept but they are so useful that they can actually change the world.
Finally, we found a revolutionary solution, but we are still just at the beginning of its implementation!
Paper, Excel Sheets…and Papers Again
Bureaucracy has been born with the first uses of paper, being as old as this material, existing even since the Sumerian civilization. Millennia later, the mass-scale use of computers didn’t really solve much. It just moved some of the work into excel sheets and other similar ways of storing and passing information.
The level o bureaucracy is still huge in many countries, especially the ones that are in course of development. Bureaucracy has become a real pain, mostly for small companies, that are highly discouraged from even starting just because of the door-to-door old paper systems and legal implications that can give you headaches; law and fiscality being also domains in which bureaucracy is still thriving.
Are Smart Contracts Really Smart?
Even if they are called smart contracts, these tiny pieces of code or tiny programs on a blockchain are not actually that smart. In fact, they are really basic and they have simple functionalities, such as storing information, checking it for correctness, and then doing what was initially intended with it. They do have one particular thing: they cannot be edited, once they are created. Nobody can break them, to be more clear.
What makes them great is the fact that they are made on blockchain technology and this means that they can’t be faked and once information is on the blockchain, it is there to stay. Any contract or transaction that has been made using smart contracts will always be there in the blockchain’s history.
The vending machine analogy
To exemplify it, we can use the most simple analogy, used in a TED presentation, in which the way smart contracts work is compared to a vending machine, working in 3 basic steps.
You insert a coin, then the machine checks if the coin is the correct amount and then it delivers what you want for that value: a soda, a chips bag, or in a real case, a digital signature to a contract.
Fulfilling an Avid Need, the Need for Trust
There is a huge need for better trust in the world and this applies to the economy especially.
Banks have evolved a bit in the last years and for example, when you want to buy an apartment, you will only send the money to the seller’s account when the bank decides that the seller has completed all the paperwork and paid all the dues left. This is the first step made in the direction of having better contracts that generate more trust. Smart contracts work similarly.
The car selling analogy
Let’s take another everyday example, like selling a car. In the classical situation, the buyer would have to come with a suitcase of printed money. From this moment, anything could happen face-to-face. Things can go bad, there are all kinds of situations.
This can also happen when the buyer sends the money to the seller’s account without intermediaries. But, when the bank handles this, it’s a different thing. A third party is involved and can settle things up.
With smart contracts, it is even better, because everything is transparent and the trust problem is solved right from the beginning. You can’t tamper with smart contracts, and this makes them ideal solutions for future use in many areas of activity.
A smart contract works like a cryptocurrency account with an address on the blockchain and a private key, but it also contains the code that dictates its rules and instructions. Pretty neat, right?
Any transaction between one or more entities can be backup up by a smart contract. In this way, the conditions for the transaction to be made are preestablished and the code of the contract will run them automatically, making the transfers possible only under those conditions. These transactions are secure; the code is secure, everything is transparent and immutable.
This is what smart contracts are. It may seem complicated, but it’s not. They are starting to be implemented successfully on many platforms. Bureaucracy issues and trust issues in many domains may become problems of the past, very soon.