How Smart Contracts are Changing the Way we do Business?

• Amber Smith
• November 21, 2022

Blockchain technology, which has been talked about a lot lately, can really change the world. And speaking about blockchain capabilities, we just cannot but mention smart-contracts. They, in combination with the decentralized distributed structure of the blockchain, are able to radically change the existing ways of doing business. Smart contract software, as it turned out, is effective at coping with the tasks assigned to it, and improving the development tools of smart contract blockchains allows SCs to cover all new niches.

What are smart-contracts?

Technically, a smart contract is a program with the logic designed in such a way as to automate processes that can be clearly algorithmized. The smart contract code specifies the terms of the agreement concerning two or more parties, as well as the actions that are performed if these conditions are met (or not fulfilled).

A smart contract can be compared with an ordinary computer program, but there is also a significant difference: the SC cannot be changed after it is placed on blockchain, which, on the one hand, can be considered a disadvantage, but on the other hand, it is an obvious way to protect yourself from any attempts of fraudulent actions, as well as from human errors.

Smart contract blockchains, unlike it is in conventional contracts, do not have a legal basis, but for the Internet as a whole, this is normal. But the accuracy of agreement execution is guaranteed by the logic of the program, in which all aspects of the contract and the actions performed are clearly spelled out, depending on the parameters of smart contract execution transmitted to the program by the initiator of SC.

Why are smart contracts important?

Cryptographic smart contracts are by no means just a new trend in the world of cryptocurrency, although this aspect cannot be disregarded, given how rapidly their total market capitalization is growing. But the benefits of smart contracts are obvious, and smart contract crypto platforms are now widely used in many spheres.

Therefore, in such areas as the provision of financial, banking services, real estate transactions, insurance and many others, smart contract development is not just justified, but very useful and effective. The main thing is that the logic of the program should be flawless, without errors and loopholes that could be exploited by attackers. And this applies to both smart contract crypto transactions and nft smart contracts as well.

Smart contract applications

For the first time, the idea of using an analogue of the current smart contracts was proposed in 1994 by cryptographer Nick Szabo. It is noteworthy that there was no talk of blockchain at that time. He just expressed the idea of using program code to perform trusted transactions in automatic mode, without the participation of intermediary structures such as government organizations or banks.

Unfortunately, this document remained on paper, having received a powerful impetus to development only after the advent of the Ethereum platform in 2014. Today, the idea that smart contract blockchains can change our lives is gradually taking root in the public consciousness.

The development of a smart contract includes several important stages. The first phase is the development of a concept, when the business team actively cooperates with developers to coordinate all aspects concerning both the logic of the program and the ways of its implementation on the blockchain. The simplest example is a monetary transaction involving events such as payment authorization or sending a payment check to a counterparty. It is important that the logic of smart contract development provides for all possible scenarios of the situation and properly responds to them.

With the increasing complexity of the business process, the logic of a smart contract also becomes more complex, and the more criteria are used to verify the fulfillment of the terms of the contract, the more possible options for actions have to be coded.

And if so, then the probability of errors increases, so the second stage after development is testing a smart contract. Often this phase lasts longer than the actual smart contract development, because you have to test all the branches of the algorithm, and there can be a huge number of them. Smart contracts are not tested on a working blockchain due to the fact that it will be impossible to change the code after its placement in the registry.

Note that the verification of the terms of the contract, that is, the implementation of its logic, can be carried out based on the data of the user who launched the SC, but in many cases this is not enough. And then the “oracle” comes into play – a special algorithm that extracts the missing data from independent sources on the Internet. Here it is important to program the oracle in such a way as to receive obviously reliable and objective information.

Finally, the last stage is the introduction of a smart contract into the blockchain. There are many platforms focused on supporting smart contracts, but historically the first and most famous is the Ethereum blockchain. Using the Solidity internal programming language significantly facilitates smart contract development; it is not surprising that most of the implemented smart contracts work on Ethereum.

Thus, Solidity provides the ability to run the SC directly from another, the parent one , which resembles the work of subroutines. For complex logic in commercial SCs, this is a great benefit. However, other blockchains also have a sufficient set of tools that facilitate the development of smart contracts. In some cases, you can become a developer even without having skills in the field of programming. So, the DecimalChain platform has an application that allows you to create your own tokens and smart contracts, including nft smart contracts as well.

Smart contract use cases

Since blockchain is initially focused on operations with cryptocurrency, many smart contract crypto platforms are used in such segments as operations with digital financial assets, banking services. Recently, their economic background has been adapting to other niches and industries, helping to optimize business processes. Let’s look at some examples of the use of SC.

Mortgage

In monetary terms, this field is really huge, considering the cost of real estate. A mortgage agreement does not have the most complicated logic and can be implemented without much difficulty through a smart contract. The parameters for the conditions of such a SC include such data as the borrower’s income/expenses, his credit rating, etc.

In the traditional version, checking the solvency of a candidate for a mortgage is a very complex process that significantly complicates the procedure, and for both parties. Smart contracts can simplify it by excluding intermediaries from it and automating many components of the verification process.

Intellectual property protection

Web 2.0, or the Internet that we use today, has proved ineffective in terms of combating piracy in all its manifestations, including copyright protection. Blockchain technology combined with smart contracts offers an innovative and effective way to solve this problem.

The essence of the method is simple: any work requiring copyright compliance is automatically digitized and placed on the blockchain. That is, it becomes a digital asset that can be sold (transferred ownership rights), including in parts. Along with the asset, the royalties are transferred to the new owner.

Supply chains

One of the features of transactions carried out, including within the framework of smart contracts, is their transparency (traceability) and immutability. These qualities are valuable when performing import-export deliveries, where many stages are usually used and many participants are involved. Sensors embedded in many modern products within the framework of the Internet of Things (IoT) concept facilitate the collection of information about the current location and condition of the goods, eliminating the need for additional labor and improving the quality of logistics. And all this becomes possible thanks to the development and implementation of smart contracts.

Insurance

In this industry, the use of SC allows you to automate many processes. A good example is insurance against natural disasters. Oracle constantly monitors reliable sources of information, and in case of receiving irrefutable evidence that the elements have hit the area of residence of the policy holder, it will automatically create an application. This will significantly speed up the insurance payment procedure.

Benefits of smart contracts

The key advantage of a smart contract is that there is no need to trust people who are participants in business relationships. All necessary conditions will be checked automatically by the computer code, excluding the bias of the human factor.

But this is not the only advantage of SCs, there are many more of them:

transparency; any completed transaction is easy to verify, while it is guaranteed that it has not been changed after the fact;

absence of intermediaries. Most classic transactions are concluded with the participation of a third party. In smart contracts, such arbitration is not needed, the role of the arbitrator is performed by the program code;

effectiveness. Automating the process of verifying the terms of the agreement and the specifics of performing transactions in the blockchain can significantly speed up the process;

saving money. Absence of intermediaries makes it unnecessary to pay the cost of their labor. In areas such as lending, banking or real estate transactions, these are significant amounts. At the same time, transaction fees are usually negligible.

The Future of smart contracts

If many question the prospects of cryptocurrencies, then smart contracts implemented on decentralized networks will definitely take root and become widespread. The volatility characteristic of digital money is fully compensated by the advantages that the use of smart contracts in a variety of industries gives.