Smart Contracts: Blockchain Logic for Your Business
Why might your product need smart contracts, and what problems can they solve?
Smart contracts are code snippets that leverage blockchain technology capabilities to facilitate, verify, or enforce the execution of agreements or contracts. The concept of smart contracts was first introduced by Nick Szabo in 1996, who defined a "smart" contract as a set of promises, specified in digital form, including protocols within which the parties perform on these promises.
Since then, smart contracts have captivated the minds of many visionaries. For instance, Vitalik Buterin, a co-founder of Ethereum, the most popular decentralized smart contract platform based on blockchain technology. However, the technology continues to evolve rapidly, with dozens of other blockchain projects now capable of creating "smart" contracts.
Experts in the field, such as Yan Chu, John Ream, and David Schatsky, describe smart contracts as "the next step in the progression of blockchain technology from a financial transaction protocol to a universal utility," according to Deloitte Insights. "They are part of software, not contracts in the legal sense, yet smart contracts extend blockchain's ability to record financial transactions, automatically ensuring the fulfillment of multi-party agreements. They use a computer network that relies on agreed protocols to ensure the contract's terms are executed in the correct sequence."
Benefits of Smart Contracts
Smart contracts offer a wide range of potential applications and significant advantages for businesses and organizations compared to conventional tools:
Immutability
Since smart contracts operate within an immutable decentralized blockchain network, their outcomes cannot be altered for unfair advantages. This attribute of "smart" contracts is immensely valuable not only for business but also for the public sector, as it ensures transparency and integrity.
Speed
Being essentially pieces of code that execute according to predetermined conditions, smart contracts process as quickly as the computational power of the blockchain network allows. This is in stark contrast to traditional contracts, which rely on intermediaries who may have specific working hours and performance limitations, thus limiting the volume of tasks they can perform. From this perspective, the efficiency of smart contracts can significantly benefit enterprises and businesses in their quest for productivity.
Accuracy
Human error is a natural part of life; some errors are serious, others less so, but when it comes to business, all errors lead to the loss of valuable time and resources. Smart contracts, on the other hand, operate flawlessly as programmed, leaving no room for inaccuracies that can arise from human involvement, provided there are no programming errors.
Cost
Smart contracts require significantly less human intervention and eliminate most intermediaries, making their execution considerably less expensive compared to traditional practices. In the future, standard "smart" contracts could become widely available for anyone to download and use, similar to the current situation with standard legal forms created by licensed lawyers to save clients' time and money.
Smart Contracts: Transformative Use Cases for Businesses
Explore various smart contract applications that businesses can directly or indirectly leverage.
Real estate
In the realm of real estate, blockchain and smart contracts are pioneering a transformation that promises to streamline transactions, enhance transparency, and reduce the complexity associated with property sales and leasing. By tokenizing real estate assets and encoding property transactions on the blockchain, buyers and sellers can engage in direct exchanges without the need for traditional intermediaries, such as brokers and lawyers, thereby significantly reducing costs and expediting processes. "Blockchain technology in real estate enables a level of transaction efficiency and transparency that was previously unattainable," says Ragnar Lifthrasir, founder of the International Blockchain Real Estate Association.
An exemplary innovation in this space is the use of smart contracts for property sales, where the contract automatically executes upon fulfillment of conditions, such as payment verification, ensuring a secure and immutable transfer of ownership. Additionally, platforms like Propy are revolutionizing the industry by offering a marketplace for international property transactions, where everything from the offer to the deed transfer is executed via blockchain. This not only simplifies cross-border property deals but also ensures a higher degree of security and trust among parties. Through these advancements, blockchain and smart contracts are setting the stage for a future where real estate transactions are more accessible, efficient, and transparent, heralding a new era in property investment and management.
Secure Voting
At the 2017 conference on financial cryptography and information security, Dr. Patrick McCorry, a PhD from Newcastle University, UK, presented his vision for secure voting using smart contracts. It's noteworthy that this conference is a leading international forum for discussing information security research for commercial entities.
McCorry's project, the Open Vote Network, developed with Siamak F. Shahandashti and Feng Hao, is described as "a decentralized self-destructive internet voting protocol offering maximum voter privacy achieved through blockchain technology." They also highlight that "Open Vote Network is suited for live meeting elections thanks to the use of Ethereum-based smart contracts. Unlike previous blockchain voting protocols, it is the first implementation not relying on a 'trusted authority' for vote tallying or voter privacy protection."
Decentralized Finance (DeFi)
Smart contracts are the linchpin of the DeFi ecosystem, catalyzing a financial revolution by enabling complex, intermediary-free transactions. They power a diverse array of applications, from lending protocols like Aave and Compound, which allow users to lend or borrow assets and earn interest, to Automated Market Makers (AMM) such as Uniswap and SushiSwap, which facilitate decentralized trading. "Smart contracts in DeFi have unlocked a world of financial innovation, enabling decentralized borrowing, lending, and trading with unparalleled efficiency," notes Ethereum co-founder Vitalik Buterin.
These platforms underscore the transformative potential of smart contracts, providing liquidity and yielding opportunities that were previously inconceivable, thereby democratizing access to financial services.
Supply Chain Management
In the realm of supply chain management, smart contracts offer a groundbreaking approach to ensuring transparency and traceability. By embedding the supply chain logistics on the blockchain, every transaction is recorded in an unalterable ledger, offering real-time visibility from the point of origin to the end consumer.
The World Economic Forum highlights the significance of such technology in enhancing supply chain integrity, particularly in sectors like pharmaceuticals and luxury goods, where authenticity is paramount. For instance, companies like VeChain are leveraging smart contracts to combat counterfeiting and improve supply chain efficiency, offering a glimpse into a future where consumers can trace the lifecycle of products with a simple scan.
Gaming and NFTs
The intersection of gaming, smart contracts, and NFTs has birthed an entirely new paradigm in digital ownership and gaming economies. Through smart contracts, gamers can own unique digital assets, from in-game items to characters, which are verifiable and tradable on the blockchain.
This innovation is not just transforming gaming experiences but also creating new economic opportunities for players. Axie Infinity, a blockchain-based game, allows players to earn cryptocurrency through skilled gameplay and contribution to the ecosystem. "Blockchain and NFTs in gaming represent a seismic shift, turning in-game assets into real-world value," states Ubisoft's Strategic Innovations Lab. This fusion of gaming with blockchain technology illustrates the potential of smart contracts to bridge virtual and real economies, empowering players like never before.
Decentralized Autonomous Organizations (DAOs)
DAOs epitomize the essence of decentralized governance, facilitated by smart contracts. These digital organizations operate based on rules encoded on the blockchain, with decisions made through collective member voting, eliminating the need for traditional hierarchical management.
The DAO, one of the first and most famous examples, aimed to operate as a venture capital fund without centralized control. Although it faced challenges, the idea inspired a new wave of DAOs across various sectors. "DAOs represent the next frontier in organizational structure, offering a blueprint for collaboration and decision-making that is transparent, inclusive, and efficient," explains Ethereum's Vitalik Buterin. From managing community treasuries to governing DeFi protocols, DAOs harness the power of smart contracts to pioneer a future where organizational decisions are made democratically, reflecting the collective will of their members.
Conclusion
We still face numerous pervasive challenges that can be addressed with smart contracts. Considering the pace of information technology development, it's evident that the era of traditional contracts is drawing to a close. As smart contracts become the norm, businesses and enterprises stand to gain significantly. Furthermore, their widespread adoption may foster entirely new business models and transform the world.
New practical applications for smart contracts emerge almost daily. As stated in a Harvard Business Review publication, blockchain technology could become the new foundation for recording all transactions, potentially giving rise to a new economic model with minimized transaction costs.
Modern enterprises, including small ones, can benefit in various ways from using smart contracts, and we are just beginning to grasp how this technology changes the game. While IT industry leaders are aware of the advantages of smart contracts and their potential benefits for their businesses—such as complete transparency, cost and time savings, and increased trust in the business environment—many choose to remain on the sidelines. The primary reason for this hesitancy is the lack of comprehensive technical blockchain expertise, a problem that remains unsolved.
Free technical consultation on smart contracts developing
Book a quick sync up with our CTO if you need a helping hand or visit our website:
Last updated
