What is a Smart Contract?
At their basic level, smart contracts are simply contracts formed and completed through the blockchain. This digital protocol is constructed to facilitate, verify, and enforce negotiations and performances of traditional paper contracts in a more secure and reliable way. On the blockchain, smart contracts support credible, trackable, and permanent transactions without the need for third-party intermediaries.
How Do Smart Contracts Work?
After establishing the need for a contract, such contracts are transformed into digital code and are stored and duplicated on the computer blockchain system. Throughout the life of the smart contract, they are approved and supervised by a network of users and computers running the blockchain. This leads to having an instantaneous, protected ledger and its corresponding feedback.
Why Use Smart Contracts?
Smart contracts offer a higher level of security and trust than typical paper contracts do. Due to the inherent nature of the blockchain, each smart contract is unalterable and cannot be changed without the approval of each user, or node. Smart contracts are also completely distributed on the blockchain. Thus, all nodes can safeguard and facilitate the outcome of each smart contract, protecting information from potential cyber attacks.
Smart contracts can operate as “multi-signature” accounts to have added protection and security on a particular financial account. For example, if a contract requires payment in increments over a period of time, smart contracts can adapt to allow funds to be released only when a specific percentage of nodes approve of the transfer of cash flow. Smart contracts can also connect to other contracts, providing utility and dimension.
Using Smart Contracts
An industry highly impacted by blockchain, banking can also take advantage of the benefits of smart contracts for transactions and processes such as loans and mortgages. By switching to smart contracts, banks and financial institutions can experience automated and accurate operations and processing, guaranteeing conformity to strict regulations and requirements.
For example, financial startup Velvet harnesses the power of blockchain and smart contracts for real estate and escrow processes. Velvet’s CEO Alexander Zelinsky explains that “Adding blockchain to the mix lets us turn the transaction into a smart contract system, meaning that deals attain a new level of security - and the best part is, it's fully automated. By removing the 'people' factor, we can remove the rate of human error, and place full trust in the automated, secure, smart contact”. Maximizing the abilities of smart contracts, Velvet provides a safe transaction alternative for potential homeowners and brokers without the risk of breach or fraud.
Improving Political Operations
Within the political sphere, smart contracts can improve the current system of voting in the United States. Traditional voting can be digitized with blockchain and smart contracts, eliminating the chance of error and manipulation. In addition, transferring voting onto an online system may increase voter turnout by offering an at-home option instead of spending time in line and filling out forms in person at voting polls.
For any organization, management and operations can become a slow, tedious process susceptible to inaccuracy. Smart contracts can offer a positive solution by streamlining communication and providing acute accuracy and automation with information and data. This results in a decrease in discrepancies with everyday processing which prevents potential lawsuits and lengthy delays.
Smarter Supply Chains
Smart contracts are an example of how blockchain can add transparency to supply chain in any industry and company. Smart contracts have the potential to eliminate systems based on written, paper errors and consolidate the lengthy channel approval process. This leads to an overall elimination of loss and fraud of inventory and information for all parties involved in the supply chain.
Safety in Automobiles
In the automobile industry, smart contracts can provide safeguards for developing technology in self-driving and self-parking vehicles as well as transform rates of auto insurance nationwide. By using smart contracts within the vehicle systems, faults and failures in sensors and detectors can be pinpointed and easily targeted. Automobile insurance may change rates based on different locations and conditions of operating vehicles for consumers.
Transforming Real Estate
The Internet has changed the real estate market and industry as more and more people have turned towards online platforms to find housing. The industry has an opportunity to use blockchain ledgers to reduce costs of searching and selling property instead of using online resources that charge posting and transactions fees. In addition, renters and buyers may pay via bitcoin and other cryptocurrencies and encode their contracts on the immutable ledger for public record.
Helping Health Care
Keeping track of health records and information has long been an issue within the world of healthcare, but smart contracts can solve this. Smart contracts have the ability to streamline insurance trials and increase public access to cross-institutional data. This can allow consumers to easily use and transfer their patient information if needed. Since information on the blockchain cannot be manipulated, encoding and storing personal health records can ensure additional privacy and confidentiality. On the health provider side, the decentralized ledger system can be utilized to manage drug and care supplies as well as test results.
Benefits of Smart Contracts
Smart contracts and the blockchain itself provide significant autonomy and transparency for both consumers and producers. With smart contracts, no legal intermediaries are needed, allowing for convenient deals with consumers.
Safety and Trust
Smart contracts take advantage of the security of blockchain to create a heightened level of trust that traditional contracts cannot provide. Smart contracts are saved and enforced accurately and immediately. Furthermore, these agreements are encrypted and thus cannot be lost or manipulated easily.
Often, contracts are reviewed and processed by notaries and lawyers. Yet, with smart contracts and blockchain, these intermediaries are eliminated and so are their fees, decreasing the overall cost of processing and transactions.
Smart Contracts are just another piece of the vast ecosystem that is blockchain. Go further.
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