If you think the world of blockchain entailing terms like smart contract development are concepts of recent years, you are mistaken. Yes, you read it right. The term smart contract was in fact coined way back in 1994 by Nick Szabo who wrote an introduction and exploration of what smart contracts were capable of doing.
Szabo imagined a digital marketplace with cryptographically safe and automatic processes enabling transactions across business functions without intermediaries. And this age-old theory is put into practice by Ethereum.
While the term and its concept sound interesting, it is important to know what is a smart contract. How do smart contracts work?
Smart contracts are blockchain programs that run when certain conditions predetermined by the parties are met. These contracts are used to automate agreement execution so that all participants in the agreement can immediately be certain of the outcome without the hassle of intermediary involvement and loss of time. Smart contract development can easily automate a workflow by enabling certain actions on fulfillment of predetermined conditions.
Smart contracts work on the basis of simple “if and when” statements that are written in code form on a blockchain. Further actions of a smart contract can be registering a vehicle, issuing a ticket, cryptocurrency transaction, releasing funds to the parties, etc. On completion of a smart contract transaction, the blockchain is updated indicating the transaction cannot be altered.
One of the distinct characteristics of smart contracts is that they don’t contain legal terms or legal language. They only consist of codes that execute actions on fulfillment of particular conditions.
Additionally, smart contracts can be programmed to work for a large population as well, replacing governmental mandates in activities like retail dealings. Execution of smart contracts also removes the need for bringing contractual disagreements into court, hence saving time and resources for both parties involved.
Owing to the underlying smart contract code, these contracts have impeccable security. Taking the example of Ethereum, smart contracts on the platform are written in solidity programming language. This indicates that the rules and limitations surrounding smart contracts are built into the network’s code making it impossible to manipulate. Such features of smart contracts help identify scams and hidden alterations to the contract.
Simple & Complex Smart Contracts
Simple smart contracts, commonly known as smart legal contracts, include contracts that comprise legal implications for parties that fail to fulfill their end of the agreement. This is as simple as a food shipment RFID sensor sending data to a smart contract that verifies and releases payment to the supplier.
Complex smart contracts consist of Application Logic Contracts (ALC) and Decentralized Autonomous Organizations (DAOs).
Currently, the most popular, Decentralized Autonomous Organizations entail that businesses can be built between shareholders collaboratively without CEO or boss-like entities. DAOs are open source, self-sustained, and autonomous and use a smart contract code agreed upon by participants who found the DAO. These decentralized autonomous organizations will persist regardless of management and change in leadership will have no impact on its vision.
The working of smart contracts is where things become really interesting, even though it is identical to other blockchain transfers.
- First, a user initiates the transaction from their blockchain wallets for smart contracts. Then the transaction exists in the distributed database wherein the relevant identity is confirmed.
- Next, the transaction, primarily a transfer of funds is approved.
- The transactions are inclusive of a code that indicates the kind of transaction to be executed.
- These transactions are added as a block within the blockchain and any change in the smart contract status will follow the same process to be updated.
Blockchain Platforms & Smart Contracts: Revolutionizing Industries
These smart contracts appear on smart contract platforms which are decentralized digital platforms. Smart contract platforms offer a plan of action for deploying blockchain-based decentralized applications, basically offering a platform for these self-executing contracts.
The major breakthrough of smart contract platforms was when Ethereum added support for programmable smart contracts and introduced the Ethereum Virtual Machine to enable smart contract functionality and manage the blockchain.
Some of the popular smart contract platforms include:
- Binance Smart Chain: This is a low-cost, scalable platform that offers developers an alternative to Ethereum for the deployment of smart contracts. Binance Smart Chain implements the EVM (Ethereum Virtual Machine) to allow developers to create smart contracts pertaining to Ethereum-based decentralized apps such as MetaMask.
- Ethereum: Hands-down one of the leading platforms for smart contract development. Smart contracts on Ethereum entail an impeccable range of resources, and tools, invariability of private data, and a vigorous ecosystem.
An amazing fact about Ethereum smart contracts; is that Ethereum continues to be the most popular smart contract platform owing to its highly decentralized security and large community. Moreover, according to Alchemy, smart contract deployment on EVM chains like Polygon, Ethereum, and Optimism was up by 302% quarter over quarter.
- Cardano: This is a third-generation blockchain platform that has gained popularity for its focus on sustainability, security, and scalability. Over time Cardano has appeared to be a better smart contract platform than Ethereum owing to the platform’s scientific approach and layered architecture.
Cardano is the seventh-largest cryptocurrency as per market capitalization and has added over a thousand Plutus V1 smart contracts to its platform since the start of 2023.
- Polkadot: This is a multi-chain platform that enables diverse blockchains to interoperate. Polkadot offers developers the benefit of scalability and flexibility in terms of smart contract development.
Along with flexibility, the platform eliminates the hassle of optimizing use cases and ensures secure, fully optimized services without downtime. Polka Dot also performs periodic upgrades on smart contracts, enhancing its functionality as per the latest technologies.
Now that you have a fair idea about smart contracts in the blockchain context, you must wonder how it is useful to businesses. You’ve reached the right blog as this piece aims to enlighten you on the benefits and basics of smart contract development.
Building Trust with Smart Contracts: Benefits Explored
Smart contract development offers automation that eliminates the scope of human error as well as reduces the need to rely on intermediaries for making transactions. Additionally, it makes the overall process cost-effective.
As per Global News Wire, the global smart contracts market size was $144.95 million in 2020 and is projected to reach $770.52 million by 2028. This also indicates an increase in the value of businesses leveraging smart contract development.
- Automatic Result Generation: Since smart contracts have a self-executable nature, they are executed automatically in fulfillment of the predetermined conditions. This nature of smart contracts eliminates the hassle of manually enforcing the contract and of litigation measures.
- Accuracy & Transparency: Smart contract development helps avoid transactional errors as smart contracts entail the terms and conditions being defined with accuracy. Additionally, since smart contracts work on blockchain platforms based on decentralization, the terms and conditions of the contract can be viewed by everyone on the blockchain platform but cannot be disagreed upon.
- Efficiency & Security: Smart contracts guarantee a high level of cryptographic security and hence cannot be tampered with. Moreover, having a distributed nature ensures that no data loss occurs with these contracts. And unlike traditional contracts, smart contracts are subject to immediate execution, making them speedy and efficient.
- Independence & Trust: Smart contracts are trustworthy owing to their secure nature as they reduce the possibility of error or human manipulation. Moreover, these contracts don’t rely on middlemen or third-party involvement
This characteristic of removing intermediaries from the equation and allowing error-free transactions is one of the reasons why smart contract development is cost-effective for companies dealing with blockchain technology.
Real-World Examples of Smart Contracts
Along with the benefits, it is important to know of the popular smart contract use cases, to deploy smart contract development for your own business as well.
Smart contracts in the real estate arena make the process of buying and selling properties easier. These contracts display enhanced transparency and hence reduce the time and cost factors, enabling hassle-free automated transfer of ownership.
As for the healthcare arena, smart contracts bridge the time gap between healthcare providers with respect to the private sharing of data like patient records. They can also be used for storing the patient’s insurance policy on blockchain would help the healthcare provider view it whenever required.
Deploying smart contracts in finance enables automated and secure transactions that eliminate the need for third-party intermediaries in activities like lending and crowdfunding. In supply chain management, smart contracts automate and encourage all parts of the supply chain to enhance their accountability.
Smart Contract Summarization: Smart contracts and smart contract development are the way forward with respect to executing advanced and automated, secure contracts on blockchain platforms.
Additionally, smart contract development offers an array of benefits and efficient use cases are proof of its success in various industries. These contracts are automated, and secure, and entail multiple forms so companies can choose what suits their requirements. So what are you waiting for? Get in touch with us for your smart contract development and take a step forward to a revolutionary pedestal in paving the way for a decentralized future for industries.
