For this article we will be taking a closer look at the basics of smart contracts. By getting a better understanding of what smart contracts are, we should be able to:
- Define a smart contract
- Explore the advantages of smart contracts
- Explore the disadvantages of smart contracts
- Discuss the significance of smart contracts for blockchains
- Explore examples of smart contract businesses
What is a smart contract?
A smart contract is a code that enforces a specific set of rules or conditions without the need for a third party. The conditions which are set down by the coding of the contract ensure that the rules are upheld and that the specified results are achieved.
Smart contracts are essentially codified business rules.
What are the advantages to using a smart contract?
They are a cheap and transparent way to make a transaction or outcome happen. This can be done using code to set the terms of the contract rather than utilizing an expensive third party such as a legal body or retailer.
They have more security, traceability, authenticity than using a traditional third party to validate a contract as the terms are set in code and all parts of the transaction can be seen on the blockchain. Without a third party to verify the transaction it can be done very fast once the transaction gets validated online. This can be seconds depending on the blockchain used.
What are the disadvantages of smart contracts?
Disadvantages are the fact that all information required to execute a smart contract are transparent and if there is an sensitive information involved it will be broadcast to the blockchain forever. Not ideal for personal information.
To have a smart contract there will still need to be third party interaction right now as any new contracts will need to be specifically coded to purpose and takes expertise to create. There can also be errors to the code if not done correctly which would cause huge issues.
How can smart contracts apply to blockchains?
Blockchains like hive are a store of information and smart contracts can tap into our fast free transactions to create immutable ledgers of contracts. This will take many different forms going forward but we will see them arriving in the near future. There are many different business uses that can be created using trustless contracts and we will see this sector growing massively going forward.
Think in terms of market orders: If X happens then begin Y as long as all of the coded terms are met. This can be applied to market purchases.
The concept of smart contracts can be widely used in mortgages, payments, national bonds, insurance claims etc to simplify the process and make the transaction fast and transparent.
They could be used to create an immutable will, releasing the money to a certain account when the specified conditions of use are achieved.
For a chain like hive with fast free transactions they can be brought into so many areas where a written contract is needed.
Take an example of smart contracts in business terms.
Smart contracts are not ready to take over all existing business dealings and retire full sections of the workforce. Yet.
Instead they are a working progress that over time will replace a lot of outdated and expensive functions. There are plenty of jobs at the moment where you are paying for a middle man solely for the reason that there are no alternatives. If you want a contract executed then you need to pay for a person who will ensure that it gets done if the requirements are met.
With a smart contract, all of this can be programmed into the code and stored immutably on the blockchain. While some data is too sensitive for posting to a public blockchain. in a lot of cases it does not matter and is nicely transparent for people who want to verify what the contracts is enforcing.
I like the idea of a blockchain will for your digital assets such as digiwills provides.
"Digiwills is a service based on a smart contract that aims to ensure that your digital assets are not lost or fall into the wrong hands. It possible to safely leave all your digital assets such as: Access to Cryptographic Portfolios, Exchange, bank accounts, emails and passwords of your social networks and everything that only you have access to. With this service we can leave everything in order for our families to enjoy our digital assets."
It is just one example of using an app to cut out expensive intermediaries but there are thousands more in contracts, gaming, sales, finance ect... While coding the contracts does create a burden of effort. As time goes by it will be easier to take existing smart contracts and adapt them to use. Blockchain usability is increasing exponentially over the past couple of years as more time and money is put into coding them. This will have a knock-on effect over time and make them more accessible to regular users at a reduced cost.
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