How do smart contracts work?
Technology has left a huge impact in people’s lives that made things a lot easier. From simple tasks like sending emails and researching, it became incredibly seamless.
Smart contracts are prevalent in technologies such as blockchain that have taken the world by storm. But what are smart contracts and how do they work exactly? Here is everything you need to know about smart contracts and how they apply to real life:
What are smart contracts?
Smart contracts are automated sets of instructions and agreements between the creator and the users. Also, it is a virtual language and is powered to enforce itself based on a series of programmed conditions and parameters.
Nick Szabo, a computer science pioneer, proposed the idea in 1994. He defined them as virtual promises with protocols to enforce them. Also, smart contracts have complete independence from a central authority— similarly to how blockchain technology works.
Brief history behind smart contracts
Nick Szabo referred to these as a set of promises, specified in digital form that includes protocols and conditions which any party can perform on said promises.
In 2009, Bitcoin appeared as the first crypto which was created on the basis of the revolutionary technology known as blockchain. Bitcoin served as the impetus for the development of smart contracts. Five years later, Ethereum made it possible to utilise smart contracts.
How do they work?
The way smart contracts work is by following easy and simple ‘if and when’ statements that will be written as code on a blockchain technology. Then, a network of computers will execute a set of actions that are predetermined by conditions that must be met and verified.
These actions may release certain funds to several parties, send specific notifications, or issue tickets. The blockchain will then be updated when said transactions are completed and verified. This allows it to be immutable which means that it cannot be changed. Only parties who were granted permission can see the results.
Applications of smart contracts
Smart contracts have various potential applications beyond crypto and other payment options. They can streamline processes and simplify daily life significantly. Here are some notable examples of smart contract use cases:
Digital identity and database
From important data to digital assets like crypto, you can store pretty much any components in a smart contract that in itself is a form of digital identity. When a smart contract is connected to different online services, the other parties can know about it without revealing any sensitive and personal information about them.
Also, smart contracts can help store private and useful information in a financial database that are transparent for collection and reference purposes. Smart contracts can execute different financial rules without ever getting intervened by any third party authority.
Smart contracts could greatly enhance insurance policies. By subscribing to a policy, the user would enter into a smart contract with the provider, where all policy terms are recorded. The user would review and accept the contract if they amend the terms and conditions.
The contract remains open until the responsible party requires it. They can then quickly submit the necessary documents to demonstrate their need for insurance compensation, and the funds will be made available the moment the user needs them.
Smart contracts eliminate the need for communication with insurance companies and their clients. Although the user still requires documentation to show their requirements, the submission and funding process will be seamless.
One of the widely accepted uses of blockchain and smart contracts is in supply chain management. Supply chains, composed of entities such as grocery stores, office warehouses, and farmers, are becoming increasingly complex.
This makes it difficult for companies to monitor product custody and payment flows. Smart contracts can streamline the supply chain by automating processes and providing incentives for all parties to be more accountable.
For instance, a supply chain store has purchased a specific quantity of goods from another continent and expects to receive the exact amount. However, human errors such as misplacement, theft, or false reporting of these supplies during export can occur.
This can disrupt the entire supply chain to the hindrance of the company. The store may receive a shipment that is not as expected due to an unknown error in the process. With smart contracts, the supply chain store can set up an automated check-in system where errors and issues like these can be mitigated.
Benefits of smart contracts in crypto
Smart contracts are undoubtedly useful in several industries. There are several benefits when using them to their full potential. Below are some of the biggest advantages to this growing technology:
Blockchain and smart contracts transactions are secured by encryption, making them highly resistant to hacking attempts. Since each record is linked to both preceding and subsequent records on a decentralised ledger, altering even a single record would require changing the entire chain.
Trust and transparency
With no third party and the use of encrypted transaction records shared among participants, there’s no need to worry about information being altered for personal gain. The biggest problem with centralised platforms is the constant worry of being monitored.
Also, information is spread around the digital space where your information is sold to several corporate entities for marketing purposes. With smart contracts, you no longer need to worry about these issues as its security measures are much more robust than other alternatives.
Speed and accuracy
The execution of a contract occurs instantly once the condition is fulfilled. The advantage of using smart contracts is the elimination of manual processes, such as paper-based documentation. This is why crypto like Bitcoin and Ethereum have faster transaction speeds that make them the more desirable payment options to go for.
Most famous smart contracts in the world
There are some applications that simply work with smart contracts the best. Here are a few of them that you should pay more attention to:
Ethereum was at some point dubbed as the ‘Bitcoin killer’ that even to this date, some people still believe that this is the case. It’s also second to Bitcoin as being one of the best crypto in the world.
ETH’s smart contracts are written under a programming language known as Solidity and are executed by the Ethereum blockchain. Currently, it’s arguably the most popular implementation of smart contracts that set this coin apart from Bitcoin and a myriad of other altcoins in the market.
Polkadot is an alternative to blockchain and is known for hosting parachains which are chains within chains. This allows more transactions to be made than the norm, making daily transactions a breeze to deal with.
The Cosmos blockchain has a lot of great features. It is a layer 0 technology with around 140 validators and an inter-blockchain communication protocol. This blockchain is designed to create a network of blockchains that will communicate with one another.
Solana is an increasingly popular coin that is built on a fast and scalable network. This coin’s blockchain supports smart contracts and Rust programming languages. Also, there are several DeFi projects in its own ecosystem because of its scalability and ability to process over a thousand transactions per second.
Future of smart contracts
Smart contracts are the future for simple agreements that can be created and executed automatically once the necessary conditions are met. This is especially true in residential conveyancing, where completion funds can be disbursed as soon as the contracts are signed.
Smart contract platforms have the potential to transform business operations globally by saving time and money while revolutionising supply chain and customer interactions. With reduced human involvement in administrative tasks, individuals and decision-makers can focus on their core responsibilities, as the smart contract automates routine work.
This technology is already being used by banks and insurance companies in their operations, and are being tested in real-world scenarios. However, it is uncertain if everything will eventually be governed by a smart contract.
However, it’s still quite early in its development stages where it’s safe to say that smart contracts are the standard in the industry just like the best crypto wallets being the better options in 2023. However, several firms and businesses have already adopted this technology. Soon, smart contracts will boom and will become one of the most intuitive software to ever grace the world.
Due to the emergence of smart contracts, a lot of industries like the casino business have utilised crypto as one of their primary methods of payments when playing Bitcasino slots and Bitcasino live casino games. This goes to show that smart contracts will continue to remain relevant and improve as time wanes.