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- Smart Contracts
- How Smart Contracts Work
- Smart Contracts Use Cases
- Legal Nature of Smart Contracts
- Wrap Up
Reading time: ~4 minutes
Smart contracts are an entirely new level of business agreement. As they introduce a self-execute feature, one must wonder if they are here to stay and more importantly, are they what businesses across the world need to start scaling quicker and more efficiently?
It’s estimated that by 2027, the smart contract market will reach the value of $345 million, as blockchain technology keeps penetrating multiple industries and transforming the way they operate. Before responding to this burning question many companies have about smart contracts, let’s take a look at what they are and how they are being used in business to motivate you to take a closer look.
The best way to explain smart contracts is by saying these are pieces of code stored on a blockchain which are self-executing contract terms when predetermined conditions are met. In their form, smart contracts follow a condition-based structure and when the specific conditions of a smart contract have been met, a new action will be completed.
Depending on the contract itself, the code will contain a certain number of conditions that are necessary to complete a particular transaction. The difference between conventional contracts and smart ones is that the latter ones are built by programmers instead of lawyers. Because of that, smart contracts are removing the need for the middle person.
How Smart Contracts Work
With smart contracts, a legal agreement is written directly into the code and then stored on a decentralized, distributed blockchain network. As there is no ownership when it comes to blockchain technology, there are two major benefits. The first one is no need for third-party involvement and the second is extreme security.
To put it simply, a smart contract will automatically monitor, execute, and enforce any agreement once certain conditions of it have occurred. More importantly, its unlimited potential leads to different versions of smart contracts. One of them is Ethereum smart contract, which is a program running on the Ethereum blockchain. Simply put, these smart contracts have a balance and send transactions over the chosen network.
Smart Contracts Use Cases
Smart contracts have been here for a while, so many industries have started implementing them into their business. One of the most recognized use cases is with insurance groups. In this industry, inefficiency was an issue for years, along with waiting times and fraud, so smart contracts were introduced as a tool that will add more security and certainty to most insurance processes.
Another use case of smart contracts is in the real estate industry with digital ownership of property and all relevant documents being stored in the blockchain. As transactions in this industry are well known as risky and stressful, smart contract strengths can bring immense value in minimizing these risks as much as possible.
Also, smart contracts are being widely used across the healthcare industry. Smart contracts are being utilized in securing and sharing patient health records in a way that’s protecting them from any potential threat and also human error.
A great example is Hyperledger Fabric smart contract implementation, where they combine smart contracts and chain codes. Here, smart contracts illustrate the transaction logic controlling the business object lifecycle that gets packaged into chain codes and then stored on a blockchain.
Legal Nature of Smart Contracts
Instead of thinking of smart contracts as legal contracts, you should think of them as business rules because they automate business transactions and focus more on discussing roles, involved party’s duties and responsibilities, and other valuable aspects of a typical business agreement.
The biggest advantage of smart contracts is that they execute predetermined rules automatically, which saves both time and money for all parties involved. Their focus is only on achieving predetermined basic outcomes, while other contracts as more complex and require more resources to be completed.
If your business is in need of automating contracts, you should seriously consider implementing smart contracts. The best way to do it is to reach out to smart contract companies that are helping visionary legal counsel to agree and manage their contracts in a unified form, without the programming expertise needed.
What are the Benefits of Using Smart Contracts?
The terms and conditions of smart contracts are clear and can be read by both parties, which also makes it much harder to dispute.
As the contracts are live on the internet and run on software code, transactions can be executed very quickly. Furthermore, it requires no copying, proofreading, or other manual labor.
Businesses worldwide are conscious of their impact on the environment. Smart contracts enable the “go-green” movement because they breathe and live in the virtual world.
This removes the need for lots of paper.
A natural byproduct of the speed and accuracy of these contracts is the efficiency with which they operate.
Higher efficiencies result in more value-generating transactions processed per unit of time.
Perhaps one of the biggest advantages of automated contracts is that they take away the need for a whole bunch of middlemen. There’s no need for witnesses, banks, lawyers or other third parties.
Backup and Storage
These contracts record the essential importance of each transaction. Therefore, anytime your personal or financial details are used in a contract, they are permanently stored for future records.
In the event of data loss, these details can be retrieved easily.
Smart contracts generate absolute confidence in their execution. The autonomous, secure and transparent nature of the contract removes any possibility of bias, manipulation, or error.
Once signed, the contract is executed automatically by the network.
Another attractive element of these contracts is the potential to significantly reduce courts and litigation fees.
By using a self-executing contract, the signatories commit themselves to bind by the determinations and rules of the contract’s code.
The most powerful aspect of all is that contracts that are automated use a high level of data encryption ( similar to what cryptocurrencies use ) This strong protection makes them one of the most secure items on the internet.
Thank you for reading!