Have you ever been paid later than you should have been or experienced some kind of miscalculation in an agreement between you and another party? Now with smart contracts, you don't have to worry about that ever happening again.
What Are Smart Contracts in Crypto?
What are smart contracts?
Smart contracts are programs that run when certain criteria are fulfilled and are recorded on the blockchain. They are often used to automate the implementation of an agreement so that all participants are instantly informed of the outcome, without the participation of an intermediary or the waste of time.
One of the earliest examples of smart contract technology is a smart vending machine. With a smart vending machine, you simply put a set amount of money into the machine, and then it dispenses the product you choose, which corresponds to the number you input at the time of purchase.
The benefits of smart contracts become clear when comparing them to a vending machine. The machines are interactive, reduce operating costs, and improve efficiency through remote manageability and back-end analytics, similar to the benefits that smart contracts offer.
How does a smart contract work?
Smart contracts operate by executing basic "if/when...then..." phrases typed into code on a blockchain. When preset circumstances are met and validated, a network of computers initiates the functions. These functions might include transferring payments to the proper parties or issuing a ticket for example.
Basically, smart contract code runs on the blockchain. The rules implemented in a smart contract can be applied both within the corporation that coded it and to other business partners who are on the blockchain as well.
The code simply executes what it’s designed to do, if certain terms or requirements aren’t met, the contract will fail to execute.
What can a smart contract be used for?
Smart contracts are used to help optimize services and reduce human error through the implementation of self-executing code, trust, and transparency produced by blockchain technology.
Smart contracts can be used for a multitude of things, such as:
- Customer relations
Customer service becomes more consistent, and conflicts are resolved more efficiently because smart contracts automatically activate the settlement agreed upon by both parties.
Automates escrow amounts and improves trust and transparency.
- Financial services
Offers automated financial services, improving efficincy and reducing cost.
Health records can be stored on the blockchain with a private key that would grant access only to specific individuals.
Facilitate the policy and make sure that it has all the proper documentation, including driver reports and driving records, with the use of the technology.
- Real estate/ loans
Connect parties and ensure that the entire process can be completed in a friction-less way through an error-free process.
- Supply chain management
Automated supply chain with less fraud thanks to the transparency of the blockchain.
- Trading activity
Trades can be executed without the need for intermediaries.
Why are smart contracts so important?
Smart contracts are important because they provide optimized services, increased efficiency and accuracy, trust and transparency, and of course security backed by blockchain technology. Let's go over the importance of smart contracts in more detail.
- Efficiency and accuracy
When a condition is satisfied, the contract is instantly executed. Because smart contracts are digital and automated, there is no paperwork to handle and no time wasted correcting errors that frequently occur when filling out forms manually.
- Trust and transparency
Trust and transparency are one of the main benefits of smart contracts. There is no need to question if the information has been modified for personal gain because there is no third party involved and encrypted records of transactions are distributed between participants.
- Reduce costs
Smart contracts eliminate the need for middlemen to conduct transactions, as well as any time delays and fees that come with them.
- Increased security
Increased security is another pro of smart contracts. That’s because all blockchain transaction data is encrypted, making it extremely difficult to hack.
Furthermore, because each record on a distributed ledger is linked to the preceding and subsequent entries, hackers would have to modify the entire chain to change a single record.
Examples of smart contracts
There are several examples of smart contracts being implemented in today's world to help company’s work more efficiently and effectively.
There have been numerous successful efforts in tokenizing real estate assets, including systems that combine blockchain with real estates, such as RealT and SolidBlock. By adding blockchain into real estate deals, smart contract technology may also revamp the paperwork and transaction procedures.
The Home Depot also uses smart contracts to resolve disputes with vendors using IBM Blockchain technology to improve its communications with vendors.
We.trade is another example of a company using a blockchain-based platform. We.trade utilize smart contracts to provide standard guidelines and streamlined trading choices to decrease friction and risk while simplifying the trading process and boosting trade prospects for partnering companies and banks.
At the end of the day, smart contracts will continue to be incorporated into our everyday lives, and across all industries. The fact that smart contracts reduce user error, increase efficiency, provide trust and transparency, all while maintaining the highest level of security is a no-brainer when it comes to the importance of this new technology.