Traditional contracts are characterized by complicated language and detailed forms. They also require intermediaries like lawyers, witnesses, and consultants. Then enters the blockchain technology and smart contracts that have the potential to transform many industries.
So what are smart contracts? This guide expounds more about smart contracts and what they entail.
What are smart contracts?
Smart contracts are computer codes that digitally enable the verification, control, and execution of agreements. A unique thing about smart contracts is that they operate on the decentralized blockchain technology eliminating the need for intermediaries when processing the transactions.
The computer protocol can either manifest the agreement between parties or complement a traditional contract to execute specific provisions like transferring funds from one party to another. The code is replicated across several blockchain network nodes, providing benefits like more security, transparency, and immutability.
Like traditional contracts, smart contracts define terms and penalties around an agreement, automatically enforcing those obligations. The critical components of smart contracts are referred to as objects. There are three objects in a smart contract:
- The subject of the agreement.
- Signatories or parties involved in the smart contract.
- Specific terms of the contract.
Presently smart contracts are well suited to execute different conditions automatically, such as ensuring the payment of funds upon particular triggering events and imposing financial penalties if a party doesn’t meet specific requirements.
Examples of uses of smart contracts
Today smart contracts are used in many industries, including financial and government systems. Suitable uses include:
Smart contracts provide a chance to create a secure voting system that is not susceptible to manipulation. That means the system’s voters would be ledger protected, which is hard to decrypt. Furthermore, smart contracts can improve the voters’ turnup because they trust an efficient system without the hassle of queuing, showing identity, and filling out forms.
Smart contracts are also revolutionizing financial services in different ways. When it comes to insurance claims, they can conduct routing, error checking, and transfer funds to the relevant party if everything is accurate. In financial systems, smart contracts are also critical for record-keeping to eliminate the possibility of manipulation of accounting data.
Additionally, smart contracts help shareholders transparently participate in decision-making. They also help in trade clearing, whereby the funds are transferred once some aspects and amounts of trade agreements are calculated.
Smart contracts also play a good role in healthcare systems. They can store encoded records of patients with encrypted keys, and only relevant stakeholders would have access permission for privacy reasons. Also, smart contracts can help researchers conduct studies confidentially and securely. The digital ledger can be used for many other functions, including regulation compliance, supervising drugs, and managing supplies.
Smart contracts can eliminate risks in the supply chain by delivering accessible and secure digital versions to parties involved in the chain. They can also be used for inventory management and automating payments.
Smart contracts are self-executing, self-enforcing contracts governed by the terms laid out within them. They have a great potential for use in industries that use data to drive transactions.