You have probably heard of smart contracts by now. They are recently becoming popular and the center of attention for a lot of industries.
For those who are new to the concept, here’s what all the fuss is about:
Smart contracts are a product of Blockchain (a digital ledger that records every transaction on a public network for transparent record keeping).
Blockchain can enable many tech products to integrate a public network for a complete trust and transparency that not only saves money but also protects participants, eliminating the need for a middleman.
Sounds pretty simple, right? It really is.
Smart contracts are designed to self-regulate and self-execute, which essentially means that you can create and terminate a contract without the traditional paperwork and the middleman.
See the figure below:
Usage and Functionality of Smart Contracts
Smart contracts can be used to exchange anything of value, such as money, shares, properties and other valuable assets through a conflict-free way that enables transparency and trust.
Smart contracts are built within a Blockchain network usually through the following steps:
- The code is prewritten designed for a specific contract
- The code is written, stored and replicated within the Blockchain network
- The code is run and executed by the network of systems running the Blockchain
- The results of the contract are updated on the accounts related to that contract.
The most commonly utilized public Blockchain for Smart Contracts is Ethereum.
The smart contracts work through a basic logic which allows them to:
- Perform calculations for rent and interest
- Store information for buyers and sellers
- Send transaction details from one account to another
Once the smart contract is created, it cannot be tampered with. In addition, the contracts are 100% self-executed, which means that they are fully autonomous in nature. Once the set requirements are fulfilled, the contracts terminate on their own.
Benefits of Smart Contracts
The influence of Blockchain is so tremendous that we may not be able to gauge how it will impact the many industries and business sectors. Blockchain regulates smart contracts that offer many benefits to individuals and companies alike:
- Autonomous transactions: Smart contracts are completely autonomous which essentially means that there is no need to rely on middlemen or central entities.
- Trust and Transparency: The contracts are encrypted on a Blockchain network where all the relevant parties have access to the contract. Notice the word ‘relevant’. In smart contracts, only the individuals who enter the contract can have an access. In addition, no one can change the contract once it’s “started”.
- Safety: The encryption makes it impossible for the hackers to tamper with the contract.
- Cost-savings: With smart contracts, you don’t have to incur the extra fee that comes with middlemen (such as a lawyer, a real estate agent or any third-party that connects the buyers and sellers).
- Speed: The smart contracts self-execute and self-terminate as the requirements of the contract are fulfilled. This speeds up the process, eliminating the time incurred on paperwork.
- Precision: With smart contracts, there are no human errors as they execute according to the code.
Levels of Complexity
Smart contracts can be extremely versatile depending on the situation. They can be as simple as a digital value exchange between two members and as complex as self-governing business agreements. This essentially means that you can have a smart contract for both small and large transactions in your life and business.
The following figure shows how smart contracts can be utilized for various types of transactions:
Applications of Smart Contracts
Smart contracts can be executed for various industries including:
- Banking and Finance
- Real estate
- Entertainment and Media
If we really think about it, smart contracts can be applicable to any industry that relies on making transactions.
The following infographic shows how smart contracts can eliminate the hassle for small and private business owners.
Final thoughts: In the next 10 years, we may not need a lawyer or a real estate agent. Blockchain eliminates the need for any third-party that connects and regulates transaction between a buyer and a seller. So, if smart contracts become popular, it will help us eliminate a lot of hassle. And, it may also put a lot of people out of jobs. Only time will tell.
Source: Visual Capitalist
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