Everything You Need To Know About Smart Contracts. If you haven’t heard of smart contracts before, think of them as automated agreements between the person who created the contract and the recipient of it. Smart contracts are written in code and stored on the blockchain, making them irreversible and immutable. They have become widely known because of Ethereum, one of the most popular blockchains, leading them to the network’s array of DApps or decentralized applications and many other use cases.
One of the most crucial benefits of these blockchain networks is that they automate the tasks that before required a third party. With smart contracts, instead of the bank approval for a fund transfer, organizations or individuals can make it happen automatically. This completely eliminates the need for a third party and allows two sides to agree on something that is relevant to them.
How It All Started?
Although most people started hearing about the Ethereum smart contract only recently, their first implementation was before blockchain technology, back in the 1990s. The idea was that these smart contracts will be used for trustless transactions on the internet, however, now their role is quite similar to the role of a vending machine.
It serves the purpose of a vendor who is providing users with a specific product, without having to bring an actual person to take the money from the person and hand them over the product. Smart contracts are similar to this analogy, but they are more versatile. Looking back to its beginnings, smart contracts keep evolving so we are able to use them without any coding knowledge, which was basically impossible only a few years ago.
Developers are also working on improving the security of smart contracts with various programming languages, creating alternative solutions such as secret contracts, and also designing new ways to automatically store the history of a smart contract in a format that a human can read after.
How Does It Work?
Think of these Bitcoin contracts as automatic digital agreements if the party’s needs are met, then the smart contract is complete. On the other side, if there is no agreement, the contract will be canceled and the funds will be reversed to the party. Smart contracts can be programmed to work with an even larger number of people, meaning they can replace governmental mandates and retail systems. A huge potential also lies in eliminating the need to bring disagreements into the court, saving each party of the contract time and money.
The reason why smart contracts are also considered secure is due to the Solidity programming language. All Ethereum smart contracts are written in Solidity which means that rules and limitations will be built into the network’s code and no human can go in and manipulate them.
Smart Contract Process
To activate a smart contract, two or more parties are needed. Once the number of people involved in the contract has been determined, the parties can agree on conditions in which the contract will be complete.
This decision will be written in the smart contract, then encrypted and stored securely in the blockchain network. When the contract is completed, blockchain will record the transaction and update the copy with it, while also updating the new status on the network.
It’s important to note that not only Ethereum can utilize smart contracts, but also other blockchain networks. For instance, each Bitcoin transaction is actually a simpler smart contract version, and it’s expected that the layer-two solutions will lead to network functionality expansion.
When To Utilize Smart Contracts?
Most often, smart contracts will be utilized to finalize payments, however, there are many potential smart contract implementations that can lead to automation in different areas. One of them is digital identity, in which smart contracts give people control over how companies are using their data. These identities are tokenism, meaning they are safe and secure from any potential threat.
Another area where utilizing smart contracts is quite beneficial is real estate. To avoid hiring expensive real estate brokers, homeowners can use smart contracts to avoid paying high fees for broker services, but also streamline the house-transfer process between the buyer and the seller.
Insurance policies also have great benefits from smart contracts, especially when signing up for an insurance policy. All the requirements within a policy can be written into the smart contract, and the user would read it in that format and sign if agreed on the terms.
Wrap Up If you’re thinking of implementing a smart contract into your business, the best thing to do would be to reach out to a smart contract development company as every implementation differs depending on the purpose, use, industry, and target audience. With so much potential, it’s highly recommendable to start utilizing smart contracts to automate your crucial processes in the company and save time and money while doing so.