The application of internet technology and IT has expanded rapidly to non-conventional areas with the introduction of Blockchain technology. One of these areas is asset management. Imagine a scenario where you purchase an apartment without having to sign any paper agreements. Or that you can sell your apartment without having to write lengthy legal agreements. It is possible, and it is the future.
Smart contracts can be used for digital asset exchange. Smart contracts can be used to transfer any value securely without the need for a middleman. They are code lines that serve the same purpose as a written contract.
What happens if there's no authority to guarantee the implementation of agreements? This is the most exciting part of a smart contract. The transactions are completed entirely via computer networks. All payment methods will be compatible with them. The majority of payments are made using cryptocurrencies such as Bitcoin. It is usually self-executable.
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Smart contracts are often created using contract development tools. They can be written in programming languages like Solidity, Java, and Go. Solidity is the most well-known.
Applications of Smart Contracts
Smart contracts have many applications. Here are some:
Insurance policies: It can take a long time to get insurance after an accident, or another insured event. This manual process increases administrative costs and makes it more expensive. Automating the claims verification, payment, and processing of claims can reduce this cost. The customer can then claim insurance as soon as an insurance event occurs.
Property sale: Smart contracts reduce auditing costs by allowing you to buy and sell a property using smart contracts. This increases transaction efficiency and improves confidence in the system.
Digital Identity: With smart contracts, digital identity can be more securely shared and protected with trusted channels.
Personal Health Tracking: This system tracks patients' health and generates reports automatically. It allows you to share your data with trusted channels while protecting it from unauthorized access.
Voting: Validates voter criteria and adds votes to the Blockchain to create the result according to the majority vote.
Smart contract codes and Smart legal contracts, these terms are often misunderstood when talking about smart contracts. These are the two main types of smart contracts. Let's take a look at each one.
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Codes of Smart Contracts
As you can see, blockchain-based technologies are largely built on smart contracts. There are many internal checks and balances that regulate the functioning of these frameworks. These include smart contract codes. These codes are self-executable and ensure security and consistency within the framework.
Smart Legal - Contracts
Smart legal contracts are real legal agreements that manage digital asset transactions. We discussed the case of apartment rentals first. It is legally valid and often has an outside scope.
The three main steps in the creation of a smart contract are:
Coding: Smart contracts, also known as computer programs, are coded. Correct coding will ensure that the contract runs exactly as intended. It should therefore automate "if that - then" a part of the traditional agreement.
Distribution: Once the code has been prepared, it is encrypted and sent to the Blockchain network or distributed ledgers for execution.
Execution: Each node on the network will reach an agreement regarding the execution of the contract when it arrives on the network. Once networks have reached an agreement, manipulation is impossible.
Advantages of Smart Contracts
Here are some benefits of Smart Contracts
- Security: Because smart contract codes are executed over the network, there is no risk of manipulation.
- No intermediaries: Smart contracts allow the parties to enter into an agreement without intermediaries.
- It is cheaper: Because it doesn't require any human intervention, it lowers costs.
- Transparency: All nodes within the network can see the terms of the agreement.
- Digital settlements allow for faster settlements.
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Disadvantages of Smart Contracts
- Rogue contracts: Smart contracts, which are anonymous and self-executing, have the potential to be used by terrorists or smugglers to carry out illegal activities.
- Code errors: If bugs or other errors are found in the code, it can cause problems in the identification and accountability of the parties responsible.
- Unreliable inputs can lead to the non-execution of a contract. Traditional contracts allow the parties to seek redressal in court. However, there is no legal validity.