Smart contracts and blockchain technology have become essential for modern businesses, from cryptocurrency mining, banks, healthcare services, supply-chain management and real estate to cryptocurrency investments and cryptocurrency mining. In this guide, we explore what smart contracts do and their effects on modern enterprises such as cryptocurrencies, banks, healthcare supply-chain management, real estate etc.
An intermediary always plays an essential role in traditional centralized models of business relations, serving as an intermediary between two parties concluding an agreement and verifying contract terms. A third party may include banks, law enforcement agencies or government institutions, among many others. This essential presence ensures successful dealings are reached between buyers and sellers.
Businesses forming relationships using centralized models rely on intermediaries for payment and contract implementation; this puts their customers' interests at risk as these systems cannot ensure payment and fulfillment of agreements.
Blockchain technology facilitates decentralized business models. This opens up endless opportunities for transactions and agreements - with smart contracts offering an alternative model approach.
Smart Contract Concept
Nick Szabo was one of the pioneers who introduced smart contracts more than two decades ago when writing about them in 1995. Szabo's concept encapsulated what modern smart contracts entail - this includes being able to implement and store contracts within a distributed ledger system. So what exactly is a Smart Contract?
What is a Smart Contract on the Blockchain?
Smart contracts resemble physical agreements in form and function; however, their digital form resides on blockchain as a computer program. Smart contracts refer to software that uses rules-based negotiations to negotiate terms for an agreement and then automatically implements it.
What is the basic premise of a smart contract? A smart contract allows parties to form business relationships directly without recourse to third parties for negotiations. Take crowdfunding as an example - teams can share their products and solicit donations until they meet a certain target goal.
Kickstarter acts as an intermediary platform between product teams and those contributing money, who both must trust. Each party pays an additional fee to cover the role of the intermediary service provider. An alternative solution would be utilizing smart contracts for similar functions as crowdfunding - sharing projects, setting goals and collecting donations without third-party involvement - so as a host, we program an agreement that executes these functions.
Programmers can create intelligent contracts that receive money until their goal has been reached, automatically dispersing it to our project team if fully funded before its deadline, with supporters' contributions going back directly into their pockets if the venture fails. Smart contracts can be stored within blockchains where data is distributed - meaning no single entity controls the money, making smart contracts an alternative way of operating decentrally and replacing trusted third parties in decentralized models. That raises some valid questions.
Why Should You Trust a Smart Contract?
Smart contracts inherit certain blockchain properties because they are created and implemented in blockchains:
- Smart Contracts on the Blockchain are Immutable. This means that a smart contract cannot be altered and can't be broken.
- The Contracts are Distributed: This means the result of the contract will be validated by all participants in the network just as any other transaction is on the blockchain. It is impossible for an attacker who wants to control funds to do so because all participants will detect and invalidate such a move.
Smart Contract?
Smart Contracts are programs or codes stored on the blockchain and contain terms which will be executed upon certain agreed-upon events.
Consider an example: Alice lives in Los Angeles, while Bob needs an apartment for his trip.
The Logically Behaving Algorithm
Alice and Bob would typically utilize an intermediary platform such as Airbnb to facilitate rental negotiations between hosts and guests to agree to rental terms, while Alice/Bob both incur a fee from using it; should either of them fail to fulfill their responsibilities, the dispute resolution process could become lengthy and require detailed analysis from both sides.
Smart Contracts allow Alice and Bob to form contracts that operate logically according to its algorithm, guaranteeing the fulfillment of agreed-upon terms and conditions - its DNA remains immutable, so neither Alive nor Bob can try and bypass its authority by cheating.
The following events and terms can be included in an intelligent contract between Alice & Bob:
- It is possible to create a storage system where Alice and Bob can store their valuables but cannot easily remove them.
- Bob stores money to pay for his rent.
- Alice stores the apartment code and address in a safe.
- Alice receives a payment confirmation, and Bob gets the apartment number and address.
- Alice will receive the payment if Bob arrives in LA and Alice's code and address are correct.
- Bob will get his money refunded if it turns out that Alice's code or address needs to be corrected.
- Alice receives her liquidated damage payment if Bob does not come to LA. Bob will get the remainder of his money.
- The smart contract will be considered complete and stored on the blockchain.
Smart contracts can be described as one-off events and conditions triggered by certain actions; their code should include terms to ensure their fulfillment. The blockchain is an independent guarantee that contracts will be fulfilled since copies are stored publicly by each network participant, and smart contracts remain undisturbed by outside influences.
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Smart Contracts are Not One-Size-Fits-All
Alice may consider creating an agreement for all future renters so she doesn't need to create individual smart contracts for each. This universal agreement makes renting Alice's flat on the blockchain simple: potential guests pay rent and receive access codes and addresses of her apartment complexes. Then Alice is reimbursed if all goes according to plan.
Smart contracts blockchain provide more flexibility. A smart contract could be programmed to be used by Alice and anyone wanting to rent her apartment. Blockchain smart contracts can contain more precise terms for renting Alice's apartment; for instance, they might include automatic adjustments of prices, discounts for partial payment arrangements or partial rent payment obligations, among many other options.
Smart Contracts for Blockchain Networks
Blockchain technology has generated much discussion surrounding smart contracts. There have been multiple implementation examples across various blockchain projects and networks - Bitcoin and Ethereum are two prominent examples.
Bitcoin
Bitcoin's protocol can be used for transactions and smart contract development. Bitcoin features a programming system which supports multi-signature contracts with payment channels and escrow services, as well as RootStock: an Ethereum smart contract platform built upon Bitcoin blockchain technology.
Ethereum
Ethereum was developed specifically as the leading blockchain framework for smart contracts. The decentralized Solidity-programmed framework ensures smart contracts run uninterrupted from interruption, censorship or fraud; its database houses all individual transactions and smart contract transactions, including their source codes.
Smart Contract Benefits
Smart contracts provide an alternative to conventional business transactions by employing explicit programming algorithms with blockchain, decentralization, and transparency as key properties.
Smart contracts are great with a central business model of business.
- Deal directly with clients. Smart contracts eliminate the need for intermediaries and enable transparent direct dealings with customers.
- Resisting failure. A single entity or person does not control data and money, as businesses don't depend on third parties. Decentralization means the blockchain will function even if an individual leaves it.
- Increased trust. Automatic execution and enforcement of business agreements. These agreements can also be unbroken because they are not mutable.
- Fraud reduction. Smart contracts, which are distributed in the blockchain network and stored therein, have their results validated by all participants in this network. No one can force the release of funds or other data belonging to others because all blockchain participants will recognize this as a fraudulent attempt and flag it as such.
- Cost-efficiency. By eliminating intermediaries in smart contracts, blockchain eliminates extra fees. This allows businesses to transact and interact directly with their clients and to pay low or no transaction fees.
- Record keeping. The blockchain stores all contract transactions chronologically and allows access to the audit trail.
Smart Contracts: Use Cases
Smart contracts have grown increasingly popular over time and can already be implemented in various blockchain projects. Here are a few promising smart contract examples from various industries.
All About Banking
Smart contracts may prove their greatest worth in the banking industry, where they efficiently replace conventional transaction models. Smart contracts automate most financial transactions relating to payments and loans.
KYC-Chain is an integrated platform which implements smart contracts for individuals, companies and financial institutions. KYC-Chain's smart contracts allow clients to meet regulatory standards through automatic smart checks while sharing relevant documents with notaries or institutions that certify these documents for digital certification purposes.
Healthcare
Smart contracts strategy offers another means to improve healthcare delivery systems. They streamline insurance trial processes, facilitate data access from across institutions, and build patient trust regarding privacy concerns. Blockchain networks still present issues related to authentication and identity verification, however.
Dentacoin is an example of smart contract technology within the healthcare industry. Dentacoin seeks to unite patients and dental professionals by offering cost-effective yet quality dentistry worldwide.
Supply Chain
Supply chains are another area where smart contracts offer real-time transparency, offering detailed inventory tracking that benefits supply chain finance while decreasing fraud risks.
Smart contracts can be implemented successfully regardless of the marketplace or product being sold, from peer-to-peer markets like Name Bazaar that utilize blockchain smart contracts within them to peer exchange domains as cryptographic assets to large public auction platforms with smart contract functionality such as Ethereum.
The Legal Aspects
Smart contracts have quickly become the modern way of solving legal issues and authenticating documents, providing a cost-efficient automated solution. Notarization no longer needs to be the go-to way, with smart contracts as the perfect complement.
Real Estate
As part of your study on How Smart Contracts Work, you have gained an overview of smart contracts related to real estate projects; while real-life projects tend to be much more complicated and require a holistic strategy to address all opportunities and risks appropriately, smart contracts provide one option among many for accomplishing such endeavors.
FOAM, for instance, provides users with access to an online stock exchange where they can make real estate transactions, secure financing solutions for properties they are leasing out and manage their lease contracts in addition to receiving funding for them.
The Government
Decentralization technology may have profound ramifications on government and monopolistic systems - the potential consequences could prove compelling.
Horizon State, an Australian firm, is creating voting tools and other democratic aids based on blockchain. Using this ecosystem-based system, Horizon State will offer secure yet cost-effective campaigns in multiple elections worldwide. Horizon State strives to foster transparent voting practices worldwide.
Internet of Things Networks
Smart contracts can interact with multiple technologies, one being IoT. When combined, they can bring about transformations across industries.
Project Oaken stands as evidence. Oaken is an IoT platform which unifies autonomous IoT hardware and software with blockchain and smart contracts. This combination makes Oaken adaptable enough for almost all devices. It allows its use in creating IoT networks that address real-world needs.
Read More: Trends And Features Of Smart Contract
Smart Contracts: Top Trends for Development in 2023
Smart contracts have quickly gained widespread acceptance since their creation and have revolutionized business operations. These smart agreements have opened up a new world of opportunity by automatically executing between buyer and seller via coded contracts.
As 2019 begins, businesses can enlist the aid of smart contract development firms. Professional services will assist their clients to quickly adapt to emerging industry trends - giving them an advantage against competitors that might threaten them in being market leaders.
As we near 2023, there are certain trends we must remain aware of as smart contract technology develops further. Below are a few major predictions that are expected to shape its landscape in 2019 (for smart contracts specifically).
Decentralized Finance (DeFi), a Growing Trend
Decentralized Finance (DeFi) has quickly become one of the defining trends within the smart contract world. DeFi describes an innovative financial system built using blockchain technology that offers open, transparent services available to anyone with Internet connectivity.
DeFi platforms already allow users to manage and trade digital assets, obtain loans with them and earn interest on them. Smart contract companies can automate traditional financial processes like asset trading and lending or borrowing them.
DeFi is increasingly popular, and we anticipate more intelligent contracts will be used to develop financial products and services and facilitate transactions in the coming months.
Scalable and Efficient Smart Contract Platforms
Traditional methods for managing global business finances presented many hurdles and hurdles for their owners and managers, from high transaction costs and expensive infrastructure costs to an unnecessarily lengthy approval process for transactions between branches. Now with blockchain's rise, everything has changed!
As we witness major shifts over the coming years, things should become smoother as more efficient and scalable crypto solutions emerge. Tron has recently taken hold as a formidable alternative to Ethereum due to its incredible features and benefits; this should enable developers to design smart contracts on a larger scale using this cryptocurrency.
Interoperability Between Blockchains
Interoperability between blockchain platforms will influence future smart contract applications. We already have Tron Blockchain, and its compatibility with TRON Virtual Machine allows assets to move between these blockchains easily.
Smart contract developers no longer face difficulty integrating different blockchain platforms, making cross-platform apps and creating smart contracts compatible with each blockchain easier for future development teams.
Hybrid Smart Contracts: The Rise of Hybrid Smart Contracts
Smart contracts may be executed via blockchain technology. However, hybrid smart contracts provide another option and allow more flexible agreements to be fulfilled quickly and seamlessly.
A hybrid smart contract, for instance, could automatically change its terms based on information received off-chain from sources like weather APIs and adapt accordingly in natural disasters disrupting supply chains.
Self-executing Legal Agreements: The Growth of Self-Executing Agreements
Automating legal contracts through smart contract technology is revolutionizing the legal industry. Self-executing agreements such as smart legal contracts can be applied in various situations, such as property rental agreements, employment contracts and marriage contracts. Smart contracts have made legal processes more cost-efficient and time efficient.
Smart Contract Development and Artificial Intelligence
AI can greatly enhance the functionality of smart contracts. AI could, for example, automatically generate smart contracts based on inputted data or use artificial Intelligence to detect compliance violations more reliably and promptly.
Artificial Intelligence can also be leveraged to interpret and analyze large data sets in real-time, facilitating automatic contract execution based on preset criteria. As a result, adaptive and highly complex smart contracts could be developed.
Increased use of Formal Verification for Smart Contracts
Developers of smart contracts today ensure their code is completely safe from bugs or vulnerabilities and is, therefore, suitable for financial transactions or high-stake interactions.
Many Smart Contract development companies also specialize in auditing services to examine code thoroughly before deployment. Formal verification relies on mathematical techniques to make certain that smart contracts behave in all scenarios and deem any actions unnecessary as part of this verification.
Formal verification may take more time and resources. Still, it is important to ensure smart contracts remain reliable and secure. Formal verification could become even more popular as more people embrace smart contracts.
Tron Smart Contract Development
Tron is an emerging blockchain platform favored by smart contract developers. Solidity, the programming language used to develop Ethereum smart contracts, has quickly become popular in this field; consequently, Tron Smart Contract Development may soon become even more prominent within businesses.
Smart Contracts: A Better Supply Chain Management Tool
Smart contracts can transform supply chain management by automating the tracking and movement of goods. Smart contract companies provide an immutable record of every interaction and transaction within a supply chain, creating an immutable record of every event.
Smart contracts offer many advantages for increasing efficiency, transparency, and decreasing fraud by automating the tracking of transactions and recording their outcomes. Smart contracts could automatically pay suppliers once their shipment has been successfully verified and delivered - thus eliminating manual reconciliation of transactions and their associated risk.
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Last Thoughts
Smart contracts and blockchain enable business partners to establish relationships based on mutual trust rather than traditional, centralized cooperation models. Smart contracts take advantage of blockchain properties to offer immutability, distributed storage space and other features - the main difference between smart contracts and formal agreements is their credibility due to their immutable and distributed storage capability.
Businesses have already seen the impact of blockchain technology. While its implementation will take longer to see change than anticipated, smart contracts and blockchain technologies provide great examples of successful implementation that help set a foundation for future business endeavors.
