5 reasons to use Smart contracts
How would you like a world of ease in business transactions? Have you ever imagined the exchange of value in a stress-free and secure way? If yes, then, you have an idea about the computerized tool that is already changing the world.
This computer program called Smart Contract is simply a tool that allows things done to satisfaction, in the exact way you intend it to, without supervision.
Before we dive into the world of Smart Contracts, let us examine the environment that allows Smart Contracts thrive. By this, we mean Blockchain. Blockchain is a digital ledger that is created to power a huge volume of transactions for value exchange in an efficient and accurate way. Blockchain records virtually all forms of value e.g. Digital monies such as Bitcoin.
Because Blockchains are built for transactional purposes, it simply allows users to make plans (Contract), agree on the plans and ensure the agreed plans are performed even when the planners are not there. To ensure these contracts are carried out without stress, Blockchain use Smart Contracts as its building blocks for efficient self-acting processes.
To understand what Smart Contracts are, it is crucial to understand contracts;
A Contract is like a promise or an agreement between two or more people to do certain things and get specified outcomes that satisfies all parties involved.
In the traditional form, a Contract requires the creation of a document that contains all the agreed activities of the intended transaction(s). Here, everyone involved will agree by signing the document. This document is usually approved by all parties, and to make it binding, a third party or middleman is involved. This middleman, e.g. a Lawyer is entrusted to keep the document safe and ensure all activities stated therein are performed.
HOW CAN A CONTRACT BE SMART?
When a Contract is termed smart, it simply means that the actions specified in the agreement are carried out to the letter without the supervision or control of a middleman.
A Smart Contract is a computer program that runs on a Blockchain to be in control of agreed transaction terms and make it work on its own. It is used to secure, enforce, and execute settlement of a recorded agreement between people and organisation. As such, they assist in negotiating and defining these agreements. You can entrust a Smart Contract with a unit of value, and it will ensure that the rules around that value are followed perfectly.
Case Scenario
Imagine Mr.Man promises to give his car to his neighbour Ms.Woman after his retirement on a specified date, if Ms.Woman delivers a box of chocolate donuts for his retirement party.
Mr.Man then creates a garage and secures the car in the garage with a special magic lock that ensures that the garage would not be opened until that specified date after a box of donut has been delivered. The magic key to the garage is delivered to Ms.Woman and can only be opened by her after the delivery of donuts is confirmed.
While this agreement is made, every member of that neighbourhood is aware of the details of the agreement. Therefore, if Ms.Woman delivers the box of Donuts, Mr.Man cannot refuse to give her his car.
This is how a Smart Contract works on the Blockchain Technology; If and then rules are what controls the process. I.e. if A does something, then B will do another. If A refuses to do something, then a specified something must happen to A and B. When these pre-agreed rules are met, the transaction is complete, and a contract has performed.
A Smart Contract is created to digitally verify and ensure that a process is valid and ensure that the valid process is performed exactly the way it is meant to be.
It is built on the intent of credibility that ensures that a particular result is gotten if a scenario is fulfilled. And nothing can stop the next action from being fulfilled if the previous process has been fulfilled accurately. In the example given above, if the exchange were to be done through a middleman, it is subject to manipulation and failure to satisfy a party. The middleman may take possession of the car, lose the records of the car or fail to deliver the box of donuts. Smart Contract simply provides an option of NO-FAIL.
Relying on the Blockchain technology which is a public ledger, the contract is made public for accountability and transparency purpose while the identity of the parties involved may not be revealed. There is usually a clause or prompt that triggers the next action e.g. a specific date or price will automatically set in motion the preplanned action and this will remove any confusion in the outcome of the result.
Smart Contracts are used to enforce automatic transfers of cryptocurrency and tokens between users based on the agreed conditions. It is an auto-enforcer that cannot stop until the last action on the agreement has been done and all parties are satisfied.
CHARACTERISTICS OF SMART CONTRACTS
1. UNSTOPPABLE ACTION: The most remarkable characteristic of a Smart Contract its ability to carry on despite all odds. It has the power to enforce an action is performed as set up by the creator. The conditions once set in motion are irreversible. Imagine a flight booking done on a Blockchain whereby the passenger is debited before the flight, but the aero company will not be paid until the flight is completed. And if the flight is cancelled, then a refund is done immediately to the passenger as soon as the information is updated without the hassles of litigation.
2. INDEPENDENCE: Unlike the traditional agreement where a middleman –lawyer or broker is needed to ensure the agreement is secure and performed; a Smart Contract will execute itself without any supervision. It is simply brilliant.
3. SECURITY: Because Smart Contracts inherit the interesting properties of a Blockchain, it is supported by a system of distributed public ledger that ensures all data is duplicated many times over. Therefore, the specified functions of the agreement are not erasable or lost. It is simply immutable and cannot be manipulated by any party. Data is stored in an encrypted form.
4. REDUCED COST: Based on the real-life examples of contractual service, it can be concluded that transactions are cheaper on self-executing platforms than traditional means through a middleman.
5. SPEED: It is a technological tool, what does it do, if not make things faster? Huge and varied transactions are carried out daily, round the clock, seamlessly. There is no paper work needed.
These and many more are the functions of Smart Contracts. It is a realistic tool that has a lot of possible use cases for businesses and individuals. Its application is expansive and will bring the much-needed ease to various administrative processes especially in functions such as Wages, Family trusts, time stamping, Courier Services etc.
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