Smart Contracts have become a frequently recurring topic in cryptocurrency over the past year, especially on the Ethereum blockchain. Smart contracts are not just a cog in the machine of some blockchains, but rather an entire entity of technology in and of itself.
What is a Smart Contract?
While often associated with blockchain, smart contracts were actually created well before the blockchain was invented. It was in 1994 that the first smart contracts were invented. A smart contract may be defined as “An automatically executed transaction protocol capable of controlling, documenting, and performing certain actions in accordance with the contract conditions.” The smart contract acts as a digital binding contract for any applicable parties, services, etc. without requiring the help or trust of an intermediary. A smart contract’s trustless system simply will not allow the contract to be completed or seen through until all conditions are met to the fullest extent.
Smart contracts must be coded before they are deployed, but they can be created by anyone if the blockchain supports smart contracts. Smart contracts use software code to automate tasks that would normally be accomplished through manual input and work. Smart contracts can be coded to work with external parties, and can even function without a blockchain. However, there are far less applications for smart contracts outside of the blockchain, as the blockchain provides further technological depth than any other software or network standard.
The accuracy and reliability of a smart contract is guaranteed by a consensus of developers and coders before it is deployed on the blockchain since it cannot be changed or tampered with once implemented.
The highlights
Smart Contracts contain several highly sought-after advantages that regular contracts simply cannot fulfill:
Speed and real-time updates for business processes.
Security is encrypted, making smart contracts virtually impenetrable. As each record is connected to the previous and subsequent record on the ledger, to tamper a single record would require an attacker to alter the entire chain.
Prone to manual error as smart contracts cannot omit or overlook conditions, requirements, and standards.
Less human intervention simply equals lower cost, because smart contracts are an ongoing function and do not require human input once they are deployed. In comparison to paying individuals to perform the same tasks, smart contracts are exponentially cheaper and thus far more efficient and effective.
Execution risk is very low due to decentralization, which eliminates the worries surrounding lack of performance, errors, and manipulation as all processes are managed by the network rather than an individual.
All data is transparent and trustable, yet also remains simultaneously confidential – even to other parties involved – because the smart contract can assess all details and determine if all contractual requirements are met.
The future of smart contracts
Smart contracts are in the early stages of development in the realm of blockchain and cryptocurrency, but the potential they have to become a successfully adopted technology is in plain sight. Here are several examples of where smart contracts are beginning to make an impact:
International trade. Smart contracts make this more efficient and faster as standardized rules and automated trade options simplify processes while reducing friction, minimizing risk, and creating further opportunities for companies involved.
Retailer / Supplier / Customer relations. Accurate and real time supply chain information, visibility, and communication strengthen business relationships and save time, and this also translates to excellent customer service through an enhanced retail experience.
New kinds of businesses with different business models. This can be achieved with smart contracts potentially replacing and improving multiple aspects of business, as well as creating new means of capabilities and value propositions with the use of smart contracts.
Legally binding contracts. Smart contracts can also protect and ensure businesses or individuals from breaking laws by disallowing unlawful functions.
The list of utilities is endless, with many more that are currently being implemented across the world, such as managing funds, personal health tracking, product province and history, coupon payments, micro-insurance, claims and benefits, peer-to-peer transactions, voting, record keeping, royalty distribution, vehicle registration, sending notifications, autonomous electric vehicle charging stations and more.
