Smart contracts explained
July 03, 2020
The word "blockchain" has already become part of our daily life partly because large companies have found various uses for this technology and customers have begun to understand how it works. The adoption and awareness of blockchain started to increase since 2017, and it has been implemented in different areas, one of them is its application to the smart contracts.
Can you imagine performing a business deal without hiring an agency? It is possible since some years ago thanks to the creation of smart contracts. Smart contracts help you exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of third parties.
A smart contract is a self-executing contract meant to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of transactions between the buyer and the seller without third parties.
Smart contracts were created by Nick Szabo, a computer scientist, and cryptographer, in 1996. During the last years, Nick Szabo reviewed the concept, and its implementation appears in 2009 when the first cryptocurrency appears along with its Blockchain.
The agreement contained in the smart contract goes to the decentralized Blockchain network that exists between all permitted parties at the same time. The transaction is viewed and verified by hundreds of people. This guarantee that the transaction is performed without exiting a lack of trust between the parties, there is no need for an intermediary. For this reason, all the functions are automatized and there is no need to pay intermediaries. This allows businesses and clients to save time, money, and disagreements.
The transaction is viewed and verified by hundreds of people, so the delivery is guaranteed. As trust between the parties is no longer an issue, there is no need for an intermediary. All the functions that an estate agent does can be programmed and designed into a smart contract, while simultaneously saving both the seller and the buyer substantial amounts of money.
How smart contracts work
In the traditional method, you would go to a lawyer, real estate, or a notary, explain the type of transaction you would like to perform, wait for the documentation, and pay for the services. However, smart contracts automatize the process. You would simply pay the amount of cryptocurrency required and you would immediately get your purchase. The smart contracts describe the regulations and penalties around an agreement in the same way that a traditional contract does, but also automatically enforce those obligations.
The smart contracts provide autonomy and trust, eliminates the need for third parties, and guarantees that anyone can steal your documents.
Use cases of smart contracts
Blockchain and smart contracts have been accepted worldwide in different industries although are still mostly being implemented into the world of finance and banking, some of the most successful companies that are using smart contracts are ELEKS, HashCash Consultants, SoluLab or Parangat Technologies.
Smart contracts were developed in association with cryptocurrencies. Nowadays, the most popular cryptocurrency for signing smart contracts is Ethereum. According to Dune Analytics, Ethereum (the main cryptocurrency used for smart contracts), signed between January and May of this year 5,485,103 smart contracts.
Let's observe some of the main fields where smart contracts are being implemented:
- Government, facilitating the procedure of voting and guarantee a more secure and transparent system.
- Operational Management for business operations.
- Banking and finance, banks like Sberbank or BBVA use smart contracts to log a change of ownership and automatically transfer payments to other financial institutions upon arrival.
- The travel industry, Sita has reported that 59% of airlines are implementing pilot or research projects intending to integrate blockchain into their internal processes by 2021. Along with the airlines, airports continue their experiments: 34% of them are planning to finalize research and development in this area by 2021.
- Automobile, the self-autonomous or self-parking vehicles, where smart contracts could put into play a system that could detect who was at fault in a crash.
- Real State, the procedure of renting a house is simplified with a bitcoin payment and encryption.
- Health Care, personal health records can be encoded and stored on the blockchain with a private key that would grant access only to specific individuals. The protocol can be used for general healthcare management, such as supervising drugs, regulation compliance, testing results, and managing healthcare supplies.
Future of smart contracts
The parties will never need to use an intermediary who fixes the transaction. Smart contracts automatically trigger the settlement agreed by both parties.
The resource center, Cap Gemini Consulting have provided research on the industry and the current information suggests that smart contracts can make an important impact in certain industries, such as law, travel agencies, financial and government. In these cases, the industries will stop writing traditional contracts and will start producing standardized smart contract templates.
Other industries such as merchant acquirers, credit companies, and accountants may also employ smart contracts and automatize task regarding real-time auditing and risk assessments
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