What are Smart Contracts?
Smart Contracts are simple programs that are self-executable when certain laid-down conditions are met. Smart Contracts are irrevocable in their interactions and not controlled by any user as they enforce certain rules automatically just like any standard contract. Smart Contracts run over decentralized networks having immutable ledgers and they define the parameters of an agreement on a Blockchain network.
Smart Contracts traces its origin from the seminal writing of Nick Szabo in 1994, which describes it as: “A computerized transaction protocol that executes the conditions of a contract, with the overarching goals to satisfy common contractual conditions, minimize exceptions both malicious and accidental, and minimize the necessity for trusted intermediaries.”
Smart Contracts found Blockchain as a medium to demonstrate its usage and application in a digital, tamper-proof, and permissionless environment. Smart contracts first found their usage during the introduction of Bitcoin in 2009, which laid down certain groups of conditions to be met before the transfer of funds could be initiated.
Some of the notable Blockchain platforms supporting Smart Contract development:
Smart Contracts are already in use for blockchain-based games like PoolTogether, it’s a game where users stake their funds during a shared pool, then the same gets routed into a market where it earns interest. The play ends after a predefined time and the winner is randomly awarded all those earned interests, while others get their original deposit amount. Here different types of Smart Contracts can be employed to democratize and ensure fair play.
Similarly, the use of NFTs in Role-Playing Games can have fair distribution models, and using randomness can support unpredictable loot drops. This makes a fair chance for all players to get a rare digital asset for themselves. To access randomness in many projects, a random generator named Chainlink Verifiable Random is used, it uses cryptography which is tamper-proof and publicly auditable.
The insurance sector currently functions over a much rudimentary structure that is subjected to many kinds of frauds and malpractices. Smart Contracts already have a panacea to all such problems in the case of parametric insurance or such insurance where the payout depends upon certain predefined events. The tamper-proof automated smart contract along with the blockchain’s infrastructure can quietly verify the event and promptly issue a payout. Forget the lengthy process of filing a claim, getting verified, and finally receiving funds, as smart contracts take care of all.
Individual identity is an important asset for an individual, as it contains vital personal data, reputation, and digital assets. Currently, there are many such instances where a person unknowingly shares his identity with a third party and they are entrusted to map and verify the identity. Smart contracts can simplify the process of KYC for many counterparties which are to be dealt with when a person avails multiple services.
Smart Contracts in supply chain management can work as wonder combined with blockchain as the existing supply chain mechanism can be greatly improved. The tracking of inventories backed by a smart contract-enabled system can let a more effective track chain with full visibility and transparency. Businesses can track their inventories more effectively, as it will further reduce potential frauds and thefts.
In terms of governance smart contracts can automate various operations which are repetitive in nature like the recording of land titles. Property transfer can be done by employing smart contracts and to begin the parties must transfer the property quickly and transparently. Smart Contracts will improve transparency within the entire system and also reduce auditing costs for the government.
Smart Contracts let businesses achieve a significant reduction in transaction costs, enhancing process efficiency, and ensuring the safety of data. A senior Smart Contract developer at Rejolut says that there are certain businesses and sectors where smart contracts may serve as a game changer as it calls for better management of resources while automating tasks.
Till now the adoption of Smart Contracts happened at a tardy pace but the rapid adoption of Blockchain across industries will ensure that in 2023 we can witness smart contract implementation across virtually all industries, albeit at varying degrees.