Apart from cryptocurrency, smart contracts are another popular blockchain technology. It’s a revolutionary business solution that focuses on creating smarter workflow and business procedures. As the world is increasingly becoming digitized, businesses seek new ways to handle business agreements digitally and reliably. Smart contract offer a perfect alternative to traditional contracts that are slow, risk tampering, and expensive.
In addition, the rapid rise in cross-industry interactions has accelerated the demand for smart contract development services across all businesses and industries. The contribution of blockchain consortiums such as Hyperledger and Ethereum platforms in smart contracts helps businesses optimize business and financial processes.
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What are smart contracts?
Smart contracts are self-executing programs created through blockchain technology and run automatically when preset conditions are met. They’re used to execute contracts where all parties immediately know the outcome. First, parties have to negotiate and agree before executing the contract either partly or entirely.
The smart contract will automatically execute when the pre-determined conditions are met. Entrepreneurs can use them to automate workflows where the next action is triggered when conditions are met.
Critical Parts of Smart Contracts
A smart contract has three essential parts; parties/signatories, contract subject, and specific contract terms. The parties initiate the execution process by giving a ‘go ahead’ on the proposed terms. With the subject, it’s limited to the contract’s environment. Specific contract terms are described in detail as in this Ethereum contract example. A successful transaction can only happen when parties satisfy the terms of the contract. If the parties disagree, the transaction is canceled.
Apart from removing intermediaries, smart contract are secure and cost-effective. The decentralized nature of blockchain technology ensures that the transaction is transparent and traceable. The contracts are also irreversible.
Blockchain and Smart Contracts
The enabler of smart contract is blockchain technology, a decentralized network. With blockchain, smart contracts verify, validate, accurately record, and enforce the parties’ terms agreed upon. Parties remain anonymous, and there’s no central authority governing or controlling any part of the transaction. Blockchain provides a perfect environment for smart contract as all data is recorded, immutable, and stored securely. Data in smart contract is encrypted and is recorded in blocks that cannot be modified, lost, or deleted.
Possible Uses Of Smart Contracts
The application of smart contracts can be performed in multiple industries. As said elsewhere within the article, parties can use them to enforce agreements, especially in the legal sector. Still, they can be used in supply chain management, document management, financial transactions, real estate, and many other business applications. Here are some applications in different industries.
The areas where smart contacts are being utilized include the legal transfer of ownership in digital asset trading, decentralized data storage, cloud funding, renewable energy, banking and credit services, logistics, and tracking the source and the path of goods.
Smart Contract Platforms
Smart contract platforms can be categorized based on their technology, region, or end-user. Their main differences arise from the programming languages, blockchain security, consensus, speed, cost of maintenance, and such. The first blockchain platform to develop codes was Ethereum and was specially made for decentralized app development.
Apart from Ethereum, developers can build smart contract on multiple platforms, including R3 Corda smart contracts, Echo Smart contracts, Chaincode or Hyperledger smart contracts, and EOS smart contracts.
Benefits of Smart Contract
Smart contracts bring many benefits to businesses compared with traditional contracts. First, they’re a more efficient way of executing contracts besides being more secure as each part of the process is recorded and verified. They can significantly increase the speed of contract execution because there’s no paperwork nor intermediaries involved. Other benefits include
- Transparency and accuracy: they eliminate the human aspect that is error-prone or likely to be biased. The terms are visible to relevant parties and are indisputable after the contract is established.
- Trust: These are automatically executed tasks through a pre-determined law clear and accessible to all parties. Validation by each party and the immutable nature of the agreement ensures that parties can’t break the contract.
- Better security: the encryption in blockchain makes it hard for transactions to be hacked. Security features in smart contract also create duplicates and backups in case of data damage or loss.
The world recently suffered the effects of lockdowns, movement restrictions, and mandatory rules to avoid in-person contact. This brought so many challenges to business workflows and the execution of important contracts. Smart contracts provide businesses with a safe platform to perform functions remotely and securely. The self-executing nature of smart contract enables work to flow smoothly without the fear of manipulated processes.