Introduction to Smart Contracts
Smart contracts are a type of digital agreement based on blockchain technology and are executed to form a legal contract between two parties involved.
Smart contracts have been in the market even before the advent of blockchain technology. However, recent developments in the blockchain have paved the way to an increasingly secure form of smart contracts. These are now gradually being adopted in the market.
Smart Contracts are one of the most promising applications based on blockchain technology. We will understand further in detail about the subject in this blog.
What are Smart Contracts?
Smart contracts are a set of conditions written in the form of code that meet the agreed criteria between two involved parties. The code that resides on the blockchain is distributed and highly secure. This piece of code, when executed, gets registered in the form of a blockchain transaction while ensuring the terms of the agreement are met. This execution of smart contracts on the blockchain is immutable and irreversible.
Hence, any smart contract execution is tracked from beginning to end of the transaction cycle between the two parties involved. It can be tracked chronologically in a transparent manner.
Why did the need to introduce smart contracts arise?
With the ever-advancing digital era, smart contracts have gained popularity for preparing and executing agreements. These can be implemented among any two parties residing anywhere across the globe.
It is easy to implement, transparent, accessible, and free of distance and geographical constraints.
For instance, an organization based out of India can get into an agreement with a client from Europe without having to physically travel and sign a legal agreement.
Once both parties reach a consensus on the terms and conditions of the agreement, a smart contract is designed using the ‘ if, else … then’ – statements with the help of a code. It is implemented over blockchain and registered as a blockchain transaction while minimizing frictions involved in a legal process.
The flow of a Smart Contract Execution
What are some of the use- cases in which smart contracts are being used in the industry?
Smart contracts can be used for many different domains, as explained below:
Real estate transactions
Any real estate transaction in buying, selling, renting, or listing a property for rent/sale can be executed using multiple contracts hosted on a blockchain.
To invest in Cryptocurrency, there are multiple platforms in the market like CoinDCX, CoinBase, UnoCoin, etc.
Other popular use – cases are in the domains of Credit Lending, Medical Records preservation, and access and Identity verification and management.
Important Features of Smart Contracts
Secure – Smart contracts are a piece of code designed to minimize human error and issues. They are highly secure as they reside on the blockchain distributed across multiple systems and are immutable.
Scalable – Smart contracts are easy, efficient, offer greater execution speed, and promise higher accuracy.
Easy to implement and track – Once a smart contract is written in code on blockchain technology, it can be easily executed with the click and consent of both parties. Since it is registered as a transactional record in the blockchain, it is also easy to track.
Reduce Friction – Smart contracts reduce friction incidents involving intermediaries, geographical constraints, fees of execution, and commission.
Transparent – data, agreement terms, and execution history can be shared transparently with all involved parties.
Encourages Savings in terms of time, energy and finances – Smart contracts are executed when certain conditions decided by the participating parties are met and do not need an intermediary to solicit the agreement. This significantly reduces the time spent in the implementation of the contract. Moreover, they are a cost-effective proposition as they save on the cost of legal intervention.
Source – www.engineerbabu.com
Use of Smart Contracts in Day-to-day Business Deals and Projects
Yes, smart contracts can be widely used by businesses across domains like healthcare, e-commerce, real estate, decentralized finance, and more.
They are developed on the Ethereum blockchain using the Solidity programming language, an open-source blockchain where community help is available.
As mentioned above, smart contracts are used in many day-to-day business processes, including legal agreements, timeline bindings, and business terms between two parties.
Let’s discuss this with the help of two examples:-
Suppose you are a cosmetics vendor who wants to list and sell your products on an online e-commerce platform
As a cosmetics vendor wanting to sell your products on an e-commerce platform, you must first register on their portal and list yourself as a retailer. Post registration, you will be required to sign an agreement with details of the listed products, a revenue sharing agreement based upon the sales, and other contract terms.
This form of agreement can be developed on the Ethereum blockchain with the help of Solidity, a programming language.
The execution will be much faster once both parties agree on the terms of the agreement.
Imagine you are a broker – who deals in rental properties and sales in a specific area in Mumbai.
Similarly, concerning the above example, if you deal with property and real estate rentals and purchases in Mumbai, Smart Contracts are immensely beneficial.
Smart Contract for the Sale of the Real Estate Property:-
The terms of the deal would involve –
The cost of the property
Number of parking
Society formation details along with other information
A smart contract listing the above agreement terms is developed and executed, making the deals faster and more robust. Moreover, it is highly secure as the transaction records are immutable and stored as a Blockchain transaction.
Smart contract for renting a Real estate property:
For rental agreements, smart contracts are designed in a standard format listing the following:-
Details of the Broker, owners, and tenant
Date of rent transfer every month as per the rent cycle
Terms of hand-over at the end of the rent tenure
Suppose a standard smart contract format is designed using solidity on the Ethereum blockchain and exposed as an API. In that case, brokers can feed in the required details and execute the rent agreement without any third party.
Can you think of more examples where Smart Contracts can be used?
Do let us know in the comments below.