For centuries, people have signed contracts. These agreements should be binding and guarantee each party will fulfill their part of the deal. Smart contracts are the latest innovation since they provide a simple, accurate, and secure way of signing an agreement with another party. If that sounds intriguing, here is what you should know about them!
What Is a Smart Contract and How It Works?
The definition of a smart contract is an agreement between multiple parties where contract execution is automatic. You begin by signing a smart contract with another party, which gets stored on a blockchain. Any terms you finalized are non-reversible. That means the network will monitor specific terms and execute the contract whenever necessary. If the seller delivers the goods to the client, a smart contract authorizes fund transfer immediately.
Let’s imagine you are selling a game over the internet. Once you find a buyer, they use a smart contract to lock the funds. You send the game, and the smart contract releases the funds once the buyer receives it. There’s a specific deadline that the selling party shouldn’t miss, or the contract will be canceled.
Benefits of Smart Contracts
Why would you even consider using smart contracts? It’s not only that they offer a modern and high-tech approach to agreements between parties. Here are the main benefits of using these contracts:
- Minimized fraud risk. Smart contracts use coding and advanced programming languages. These codes are complex, which means there’s a minimal risk someone could adjust them.
- Accuracy. Smart contracts will require you to enter all relevant details before signing them. That makes the risk of an error almost non-existent.
- Trust. There’s no risk that someone won’t process the contract. Once you sign it, it’s guaranteed the terms will be followed.
- Fast execution. Thanks to the fact these contracts are on the internet, the transactions are incredibly fast. Nobody needs to process the payment manually since the contract triggers it automatically.
- No need for papers. Smart contracts are an environmentally-friendly approach since they don’t require using a single paper. Everything happens on the internet.
- Permanent storage and ease of access. The blockchain keeps the records of the contract permanently. You can access it easily and from any location, and there is virtually no risk of data loss.
Real-Life Examples of Smart Contracts
Smart contracts are already present in the real world, and here are some of the actual examples of how you can utilize them:
- Trading finance. These contracts serve as escrow accounts. Once the service has been provided or the product delivered, a smart contract executes the payment.
- Insurance. A smart contract can automate claim servicing in case of a specific event.
- Energy sector. These contracts are trustworthy mechanisms to ensure energy generation and distribution meet the agreed terms.
- Charging an electric vehicle. You can subscribe to a specific provider via smart contracts, which simplifies payments by making them automatic.
- Issuing securities. It’s possible to use smart contracts to execute issuing securities based on specific rights and payments.
Uses of Smart Contracts
As you can see, smart contracts are incredibly versatile. Here is an overview of their most common uses:
- Keeping records. Smart contracts can serve to keep different types of records across many industries. Many areas will benefit from it, especially health organizations. Blockchains provide a safer way of storing sensitive client info without investing huge funds into security.
- Owning property. You can use blockchains to store data about property ownership. Smart contracts can be far more efficient than the current systems.
- Voting. The primary benefit is avoiding potential voting fraud. Each voter can validate their identity and vote via smart contracts.
- Medical research. We already mentioned storing client data, but smart contracts can protect sensitive company info, too. For example, research companies need to keep drug formulas and test results secure, and that’s what smart contracts ensure.