Smart contracts continue to gain ground across real estate, health insurance, and neighborly exchanges, providing three fundamental types of smart contracts as the foundation. But why have smart contracts been so successful, and what are their limits? Furthermore, how are we applying them practically?
As public awareness and trust in smart contracts grow, their potential grows accordingly. By making it possible to enter agreements between two parties without needing third-party intermediaries such as banks, real estate brokers, or attorneys, smart contracts may save both time and money by streamlining negotiations directly between them.
Dependability is also one key to their success. Once agreed upon, digital contracts hosted on blockchain networks become part of an immutable distributed ledger. They can serve as binding legal contracts that provide accurate, transparent, and secure services to the parties involved.
Current Smart Contract limitations stem from their incompatibility across blockchain platforms: they only interact with one server at any one time, and multiple blockchain servers cannot support smart contracts simultaneously. Yet smart contract usage continues to rise rapidly. Three categories exist for smart contracts in general, which we will define here with concrete examples for each group in this post.
Smart Legal Contracts
Smart legal contracts have semantics similar to traditional ones: "If this occurs, then this will occur." While not all smart contracts are legally enforceable, they can fulfill contractual commitments by automating actions as soon as terms and conditions are satisfied.
Smart contract code can be developed collaboratively by all involved, often via software engineers, until all parties involved agree to its terms and circumstances, producing some smart legal contracts. Other blockchain contracts, like those seen on gambling websites, may also exist without needing physical meetings between participants; each party involved simply offers their digital signature as proof of the legal standing of an agreement being created.
Real-World Example
With smart contracts on the rise, contract law is becoming increasingly digitized. Home Depot uses these legal documents with vendors, as explained in an IBM case study by its director of financial operations, Brian Quartel. Home Depot thus achieves greater visibility between itself and its vendors over what has been shipped or received.
"Every transaction feels more like settlement is taking place immediately rather than having to wait six, nine, 12 months later for settlement," Quartel asserts.
Courts in different nations and regions currently provide differing legal frameworks for smart contracts. As smart contracts gain increasing use among legal experts and associations alike, definitions for what constitutes legally enforceable smart contracts continue to change over time; for instance, a smart contract marriage license exists already in California, which may be utilized when marrying through this method.
Further Adoption
Smart legal contracts have begun making headway in various sectors, such as manufacturing and cryptocurrency mining; they could soon find application in real estate, health care, and the resolution of HIPAA breaches or disputes.
Smart legal contracts offer great promise in the real estate sector, which often relies on mountains of paperwork and incremental processes to close transactions. Since 2016, Georgia has been using blockchain to record land titles, and other countries are starting to follow suit.
Read More: Maximizing Efficiency: The Art of Utilizing Smart Contracts Effectively
Decentralized Autonomous Organizations
Smart contracts hold tremendous power to alter business structures. Thanks to decentralized autonomous organizations (DAO), shareholders may collaborate without needing CEOs or top executives in building firms without CEOs being necessary. All founding members agreed upon its business structure and smart contract code, allowing it to function autonomously while its voting mechanism determines any changes over time to this structure.
Trustless code allows the DAO to continue functioning without management; any leadership change has no ramifications on its goals, objectives, or operations. Furthermore, like any smart contract, DAOs are open source; anyone may make recommendations and submit issues that need fixing to this DAO.
However, because they are open-source, DAOs are more susceptible to cyber-attacks. Reverse engineering attacks could potentially target publicly accessible DAO sources. Additionally, business data contained by any DAO is public as it's dedicated solely to research and development in any given industry. DAOs don't contain trade secrets or business secrets, either.
Real-World Example
Molecule, Apollo Health Ventures, and VitaDAO formed an innovative three-party partnership in February 2022 to explore longevity research-centric venture capital financing.
VitaDAO allows biotech experts to quickly apply for grants and patents without filling out grant applications thanks to an Intellectual Property Non-Fungible Token assigned for every project VitaDAO undertakes; its members then oversee proposed research project submission and advancement while funding selected researchers or even providing subjects.
An autonomous DAO will handle activities such as peer-reviewing team members and awarding tokens for completed tasks while eliminating corporate hierarchy within business organizations.
Further Adoption
Physical challenges remain one of the most significant barriers to Decentralized Autonomous Organizations (DAOs), an essential element of decentralized finance. Only when robotized technology becomes widely available will organizations wishing to manage or distribute physical things employ people. Governance remains complex at every level; combining DAO-component technology and multifunction smart contracts will simplify new management structures as firms grow increasingly complex.
Application Logic Contracts
Things around us are increasingly intelligent as technology becomes incorporated into everything from smartphones and cars to air purifiers and air filter systems. Technology is helping coordinate communication across an expanding Internet of Things (IoT) network that enhances our user experiences with phones, cars, automobiles, and air purifiers, as well as smart contracts specifically created to connect such devices, known as application logic contracts.
Real-World Example
Beam Technologies of Columbus, Ohio, recently unveiled their smart toothbrush. Packed with sensors to gather user dental health data and communicate to Beam Dental Insurance provider via Bluetooth communication channels, this toothbrush converts daily use information into lower premiums based on usage frequency - since it communicates directly with Beam Dental.
An integral component of Internet-of-Things application-layer controllers (ALCs) is automatic data transfer that triggers various reactions. Blockchain, with its secure data storage and transfer platform, allows developers to utilize application code in unique and creative ways to create and customize applications.
Further Adoption
ALCs protect producers and consumers while simultaneously streamlining the information exchange. Most ALCs operate under separate management programs that connect devices only to one blockchain server.
Still, with traceable data, there's plenty of potential for growth across all business aspects - farming is an example.
IoT devices can track data on weather, insect prevalence, and soil conditions across an agriculture field, from seed to fruit. ALCs enable communication among farmers, transporters, distributors, and consumers in case of contamination, food recalls, or harsh weather that impacts the crops in any way; additionally, ALCs assist markets in managing this impact should there be drought.
IoT may also protect farmers. If proof can be produced that shows they took all steps possible to ensure a crop thrived - keeping seeds at ideal temperatures, watering regularly, fertilizing frequently - yet was still affected by unpreventable harsh weather, an intelligent legal contract may trigger payments from Farmers' Insurance policies.
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Conclusion
Smart contracts have quickly become part of our everyday lives as their capabilities increase, becoming ever-more flexible. Employed in everything from dental hygiene and international trade agreements to marriage proposals and even wedding proposals, more applications of smart contracts signal an upsurge in market value, especially given their growing use alongside blockchain technology.
Blockchain smart contracts - built upon their secure and open nature - serve as powerful engines of efficiency and innovation, whether that means revolutionizing healthcare delivery systems or supply networks. Smart contracts help usher in safer futures by considering best practices when developing them.
