Along with the cryptocurrency, smart contracts are the most exciting use of blockchain technology. Unlike the cryptocurrency, however, no one doubts their long-term staying power and ability to truly revolutionize the world we live in.
The reason for this is that not only are smart contracts more secure than conventional ways of authenticating documents but they also allow for the entire process to be almost completely automated. As you will see from the examples listed in this article, smart contracts are an unbeatable way to deal with a whole range of transactions where secure records need to be kept on an unalterable ledger.
What is a smart contract?
Benefits of smart contracts:
My Final Thoughts
What is a smart contract?
Smart contracts use blockchain technology to facilitate the exchange of money, property, information or anything that people deem appropriate to initiate a smart contract for.
The beauty of the decentralized nature of blockchain based peer to peer transactions means that these smart contracts don‘t require anything in the way of a middleman. Traditionally individuals or institutions such as banks and solicitors were required to facilitate legally binding contracts. Smart contracts allow individuals to bypass these costly and often slow middlemen and agree on a contract directly.
Vitalik Buterin defined a smart contract as being “a mechanism involving digital assets and two or more parties, where some or all of the parties put assets in, and assets are automatically redistributed among those parties according to a formula based on certain data that is not known at the time the contract is initiated”.
Benefits of smart contracts:
- Autonomy – Decentralized nature of the blockchain contracts underlying these smart contracts as well as the nature of the contract themselves means no outside party is required in the process.
- More secure – Blockchain technology creates unalterable ledgers which provide definitive proof of transactions. It also relies on encryption while operating as a secure peer to peer transaction system.
- Faster speeds – Without the need for a middleman, speeds are much faster.
- Increased accuracy – Humans make mistakes, smart contracts are designed not to.
- Cost savings – Automated process lowers costs significantly.
- Trust – Unalterable ledgers mean transactions are set in stone.
- Backup – Data storage devices can fail. Smart contracts duplicate all transactions so that all parties have a record of the transitions. The likelihood that all parties are going to suffer data storage failures is practically nonexistent.
1.Â Â Â Trade Finance
Trade Finance stands to benefit immensely from the introduction of smart contracts. Recently, Santander Innoventures said that it believes that blockchain technology will lead to more than $20 billion worth of savings per year by 2022.
A huge amount of these savings will come from smart contracts automating approval workflows and clearing calculations that at the present time are incredibly labor intensive. Not only will this automation help to reduce work-hours but it will also dramatically reduce errors and the time taken for these calculations to take place.
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2.Â Â Â Records
Nearly every foreseeable industry in the world will be able to use smart contracts to help improve the speed and security of its record keeping. One industry in particular that stands to benefit enormously is the healthcare industry.
Currently, the world‘s healthcare computer systems hold hundreds of millions of patient medical records. Despite the fact that these healthcare organizations have invested huge sums of money on security, current access and storage methods are far more vulnerable to cyber-attacks than their blockchain based equivalents are.
Blockchain technology could allow entire databases of personal health records to be securely encrypted and kept. An added bonus is that the technology also facilitates the use of a private key that means only certain individuals can gain access. Some of otherÂ blockchain smart contracts use cases include their use in issuing prescriptions, storing receipts, general stock management, storing test results, and so on.
3.Â Â Â Property ownership
Smart contracts have two huge uses when it comes to the property market. Firstly, they can be used to record property ownership. Since the use of smart contracts is faster and more cost efficient this makes them a much better alternative to existing systems. It also means that they can be used to record ownership of all types of property from buildings, land to phones and watches.
Within the housing market, smart contracts can remove the need for expensive services such as those provided by lawyers and housing brokers. This new technology also means that for the first time ever, sellers have the ability to handle the transaction completely by themselves.
4.Â Â Â Mortgages
The property market also stands to benefit from cheaper, faster, and more secure smart contract based Â mortgage transactions. Not only will this allow buyers to get into the property quicker but it will also help make the entire process a little less of a headache.
Smart contract mortgages would allow both parties to digitally agree to the sale before then processing the payment. Once this is done, the contract would update the property ownership details to reflect the change of ownership. Since the process would require unique key code authorization on behalf of the original owner, it will make the whole process more secure and reduce instances of fraud.
5.Â Â Â Insurance
The insurance industry spends tens of millions of dollars each year on processing claims. Not only that, it actually loses millions of dollars to fraudulent claims too.
Aside from supporting the initial insurance policy, smart contracts could also help improve the process of claim processing in many ways. They could allow error checks and determine payout amounts based on a set of criteria that takes into account the kind of policy that was held by the individual or organization. Once again, reduced processing times, a dramatic reduction in errors, and cheaper costs are among the main benefits.
In the longer term, smart contracts could be used in tandem with Internet of Things enabled vehicles to allow for pay-as-you-go insurance policies and the immediate activation of claims after an accident. Information such as driver license, driving records, accident reports, and policy details could be immediately processed to facilitate speedy payouts that would benefit both parties.
6.Â Â Â Medical Research
The medical research industry will benefit from similar advantages as the healthcare industry. First of all, highly sensitive data such as patient records could be transferred between departments/research centers after having been securely encrypted via blockchain technology. Since many of the patients participating in medical research have sensitive medical conditions that they often wish to remain private, keeping these records secure is essential.
Likewise, medical research companies have an enormous amount of data which includes test results and new drug formulas that they need to keep safe. These could be secured through the use of smart contracts should they need to divulge any of this information to a third party for any reason. These is but one smart contracts blockchain example that could massively benefit the medical research industry.
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7.Â Â Â Voting
Allegations of voting fraud occurred as recently as the last U.S presidential elections. Despite using computer systems that, in some cases, cost millions of dollars, fraudsters find increasingly imaginative ways to manipulate them.
Smart contracts are a simple and cost-effective solution to this problem. They can be used to validate a voter‘s identity and record their vote. This information could then be used to initiate an action after all voting had ceased. Since the blocks within a blockchain are impossible to alter once they have been recorded, manipulation of this record would not be possible.
8.Â Â Â Peer-to-Peer transactions
Smart contracts can be used for a whole range of peer-to-peer transactions. This reasoning is what led to the creation of the Ethereum Project and other such companies. Users of all shapes and sizes can use these platforms to create and agree on smart contracts. These contracts then remain active until a set of agreed conditions are met. Once the smart contract is happy that all conditions have been met, it then allows the remaining portion of the agreement to be fulfilled. Typically this is the transfer of money but this isn’t always the case.
So far, smart contracts have been used for everything from launching ICO‘s to selling goods on the internet. Companies are also using smart contracts to secure the services of development teams and other outsources companies.
The possibilities of peer to peer smart contracts are literally endless. Theoretically, they could replace many of the existing roles that are currently fulfilled by currency.
9.Â Â Â Product development
Another exciting use of smart contracts is to keep a ledger regarding the stages of development of a product. Two parties would sign the contract which would activate it. As the agreed upon project was developed, the stages and any other relevant information could be recorded to the smart contract. If the parties had agreed to such things as split payments, then as these milestones were reached, the contract would initiate their release.
A huge part of the appeal of smart contracts is their ability to keep information secure and to prove its origins. A company that has invested huge amounts of money into developing a project obviously doesn‘t wish for the information to be stolen. Generally, the only route to justice when information is stolen is a lengthy court process, something which most companies don‘t have the time and money to go through.
When it comes to intellectual property such as ideas, you only need to look as far as the never-ending patent claims between Apple and Samsung to see just how important being able to prove ownership really can be.
The list of industries that could benefit from this new technology is huge. Given that smart contracts support and secure product development, the kind of industries involved could range from a small startup to a large tech company such as Microsoft or Amazon.
10.Â Â Â Â Stocktaking
Supply chains are another area of business that can benefit from blockchain based smart contracts. Internet of Things devices could be used throughout the supply chain to record each step a product takes. Smart contract supply chainsÂ could theoretically virtually eliminate in-house theft as managers would be able to trace a missing product back to the exact time and place that it went missing.
On huge supply chains such as those found in large warehouses, these smart contracts would enable managers to see real-time stock levels and the time it takes for products to move through the supply chain. Managers could use this data to adjust stock levels and develop new working practices to improve on delivery times.
For supply chains that operate in several different locations or companies, smart contracts could do all of the above and even initiate automatic reorders and payment for orders already received. Such information as contained in these contracts could also be used to help with determining up and coming busy periods and even which products to stock at different times of the year.
My Final Thought
As I said in the introduction, I regard smart contracts as the most exciting thing to have come from blockchain technology so far. I have to admit to getting really tired of listing to self-proclaimed ’bitcoin investors‘ rattle on about how bitcoin was the best thing since sliced bread because it would put the banks out of business. For me, the majority of these people are only interested in the quick buck and are not to be taken seriously.
While these people were sitting anxiously watching the price of bitcoin go up, I spent my time reading about the Ethereum project and the smart contracts they were developing. The whole concept of smart contract applicationsÂ will unquestionably revolutionize the way we live our lives, and will be around long after everyone has forgotten about bitcoin.
Smart contracts really do have the power to take our lives out of the hands of institutions such as banks. A wonderful byproduct to this is that they actually have the potential to make our world more democratic too. Since we can use them to exchange something as simple as labor, or more complex things such as loans, as they gain in popularity, the number of these services will grow exponentially.
We will be able to choose to access mortgages, which could be pooled from groups of investors, under the protection of smart contracts. No longer would be forced to pay whatever the few large banks decide to offer. We would have the power to negotiate rates given the strength or weakness of our positions. Also these investors would be less likely to want to hastily foreclose on our collateral and leave us homeless in the process.
For existing systems, as I have shown, the technological advantages of smart contracts will help to speed up transaction times, lower costs, and even make processes much easier and stress-free. The truth of the matter is that smart contracts are the real place where the blockchain revolution is taking place. And when smart technology is present in the cars we drive, things we use, and helps determine the choices we make, the world‘s going to be a lot more secure and interesting place in which to live.