The value of blockchain: smart contracts
Smart contracts are a lesser-known but important application of blockchain technology. Read here to find out what exactly is a smart contract and how it can be practically used in the real world.
By far the most well-known use of blockchain is cryptocurrency. This is because the distributed ledger technology makes for a great method to track and store value publically and allows digital currencies to be used securely and practically. Though blockchain technology is relatively new, it has already gained much notoriety for this cryptocurrency applications.
There are many valuable aspects that are inherent to blockchain technology, such as security, decentralization, immutability, borderless, public, and so on. These properties make blockchain technology very well suited for applications beyond just cryptocurrencies.
One of the most promising, yet under-the-radar applications is smart contracts.
What is a smart contract?
Smart contracts are essentially a set of rules that are written to be specifically processed by a blockchain-based network. The terms that are written in the smart contract are executed without the need for an intermediary and can be programmed to execute automatically once certain conditions and/or a consensus has been reached.
How are smart contracts useful?
Smart contracts are deployed on a blockchain, it, therefore, inherits some blockchain properties that make it a robust and valuable tool.
When terms and conditions have been agreed upon by the parties involved and written into the smart contract, they cannot be changed, and only can be renegotiated upon some specific conditions or dates (if parties decide to do so, but this is not generally the case as the smart contract would have to be entirely rewritten). This is due to the immutable property of blockchains. This is especially useful in cases wherein trust is needed because all parties can be sure that the terms of the smart contracts or the contract itself cannot be tampered with or altered. Also, if the contract has been written to hold a certain amount of crypto coins to be released upon certain conditions, it may reduce friction that can often occur during times where payments and release of funds must be executed.
Smart contracts are also great for saving time and money on costs that require administration or a third party to mediate. Typically, any task that needs the approval of an administrative body or a third party will take more time, unless the approval process was somehow automated and/or fast. Smart contracts are able to provide this because they can be programmed to automatically execute based on certain outcomes, results, or events. Not only does this eliminate costs associated with having an intermediary and human errors, but also increases the speed at which parties involved in the smart contract can complete tasks.
Furthermore, because of the distributed/decentralized nature of smart contracts, the terms and conditions must be agreed upon by the parties involved. This means that the terms of the contract are always visible for the parties involved to see and therefore limits the amount of misinformation or confusion that can occur on traditional contracts. For example, if one party decides to change the terms of their contract, other parties could be unaware, which could lead to disputes, mistakes, and unneeded problems.
Suffice to say, smart contracts have some very practical uses that make processes more efficient, cost and time-effective, and streamline. But what are some real-world use cases of smart contracts we can see today?
Use cases of smart contracts
Below are some of the many real-world use cases of smart contracts.
Digital Identity — smart contracts can provide people with their very own digital signature, in other words, people can technically have their very own decentralized digital identity. This can very safely and securely streamline the KYC and login process without the need for a third party to verify the user’s identity. Additionally, only the user (the person who holds both private and public keys) will be able to access their own digital identity and signature.
Supply Chain Management — A supply chain is essentially a network of many moving parts, individuals, and organizations that are involved in the creation of an end product. Utilizing smart contracts on the supply chain will help eliminate the hefty administrative apparatus that is needed to run and manage the supply chain. This improves the supply chain’s transparency, trust, speed as well as reducing time and monetary costs.
Insurance — Through smart contracts insurance terms can be agreed upon by the provider and the customer, at this time smart contracts are only applicable on parametric insurance. This also means that during the time when insurance claims are made, the time needed to reach a consensus between parties is relatively faster.
Property Rights — Bills of sale, proofs of ownership, and ownership documents can be tokenized. Any proof of ownership transaction is then stored on the blockchain through smart contracts. This means that a linear transfer of ownership from one owner to another can occur which in turn, limits fraud and also streamlines the process of ownership transfer. Also, this improves the transparency of ownership, which ultimately reduces disputes and human errors.
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