prologue
A smart contract is a type of digital contract based on blockchain technology that is executed to create a legal agreement between two parties involved.
Smart contracts were on the market even before blockchain technology came along. However, recent developments in blockchain have paved the way for an increasingly secure form of smart contracts. These are now being gradually adopted by the market.
Smart contracts are one of the most promising applications based on blockchain technology. In this blog, we will understand the subject in more detail.
What is a smart contract?
A smart contract is a set of conditions written in the form of code that meet agreed criteria between two parties. The code that resides on the blockchain is decentralized and highly secure. When this code is executed, it is registered in the form of a blockchain transaction, ensuring that the terms of the contract are met. Execution of this smart contract on the blockchain is immutable and irreversible.
Execution of a smart contract is therefore tracked from beginning to end of the transaction cycle between the two parties involved. It can be tracked chronologically in a transparent way.
Why did the need arise to introduce smart contracts?
With the ever-evolving digital age, smart contracts are gaining popularity for the preparation and execution of contracts. These can be implemented between any of her two parties located anywhere in the world.
It’s easy to implement, transparent, accessible, and has no distance or geographic restrictions.
For example, an India-based organization can contract with a European client without physically traveling to sign a legal contract.
Once both parties reach a consensus on the terms of the contract, the smart contract is designed using “if, else … then” statements with the help of code. Implemented on the blockchain and registered as a blockchain transaction with minimal friction associated with legal proceedings.
Flow of smart contract execution
Source: https://www.researchgate.net/figure/Schematic-diagram-of-smart-contract-execution_fig1_330895691
What are some use cases where smart contracts are used in the industry?
Smart contracts can be used in different domains, as explained below.
real estate transaction
Multiple contracts hosted on the blockchain can be used to execute real estate transactions for buying, selling, renting, or renting/selling a property.
Investing in cryptocurrencies
There are multiple platforms in the market to invest in cryptocurrencies such as CoinDCX, CoinBase and UnoCoin.
Other Common Uses – Cases are in the areas of credit lending, medical record storage and access, identity verification and management.
Source: Researchgate.net
Key features of smart contracts
Safe – A smart contract is code designed to minimize human error and problems. They live on blockchains distributed across multiple systems and are immutable, making them highly secure.
scalable – Smart contracts are easy, efficient, fast to execute, and highly accurate.
Easy to implement and track – Once a smart contract is coded in blockchain technology, it can be easily executed with a click and consent from both parties. Since it is registered as a transaction record on the blockchain, it is easy to track.
reduce friction – Smart contracts reduce friction incidents involving intermediaries, geographic constraints, execution fees, and commissions.
transparent – Data, terms and conditions, and execution history can be transparently shared with all parties.
Promotes time, energy and financial savings – Smart contracts are executed when certain conditions determined by the participating parties are met and do not require an intermediary to seek agreement. This significantly reduces the time spent implementing the contract. Moreover, it is a cost-effective proposition as it saves the cost of legal intervention.
Source – www.engineerbabu.com
Using smart contracts in everyday business transactions and projects
Yes, smart contracts can be widely used in businesses across domains such as healthcare, e-commerce, real estate, and decentralized finance.
They are developed on the Ethereum blockchain using the Solidity programming language, an open source blockchain with community help available.
As mentioned earlier, smart contracts are used in many everyday business processes such as legal agreements, timeline bindings, and business terms between two parties.
Let’s illustrate this with two examples.
Suppose you are a cosmetics vendor who wants to list and sell products on an online e-commerce platform.
As a cosmetics vendor wishing to sell products on our e-commerce platform, you must first register on the portal and list yourself as a retailer. You must sign a contract on terms and conditions.
This form of contract can be developed on the Ethereum blockchain with the help of the programming language Solidity.
Execution is much faster once both parties agree to the terms of the contract.
Imagine an intermediary for rental properties and sales in a particular area of Mumbai.
Similarly, regarding the example above, smart contracts are very beneficial when dealing with the rental or purchase of real estate or real estate in Mumbai.Smart contract for real estate sale:-
Terms of the deal include –
property cost
Ownership transfer
purchase contract
Parking number
Maintenance costs
Organization details and other information
A smart contract listing the above terms and conditions will be developed and executed to make transactions faster and more robust. Additionally, transaction records are immutable and stored as blockchain transactions, making them extremely secure.
Smart contracts for renting property:
For rental agreements, smart contracts are designed in a standard format that includes the following list.
Broker, owner and tenant details
lease term
lock-in period
Monthly rent transfer date according to the rent cycle
Handover conditions at the time of rent expiry
Suppose a standard smart contract format is designed using the robustness of the Ethereum blockchain and exposed as an API. In that case, the broker can enter the required details and conclude the rental agreement without a third party.
Conclusion
A smart contract is an efficient, digitized way to conclude agreements between parties. These can be developed on the widely adopted Ethereum blockchain using Solidity. Solidity is a programming language similar in syntax and semantics to JavaScript. They help reduce third-party involvement, cascade geographic barriers, and execute quickly. In addition to this, tracking and managing smart contracts via blockchain is secure, making it a highly useful vehicle in the years to come.
Can you think of more examples where smart contracts can be used?
Let us know in the comments below.
