With numerous of scams happening not only in this country but also in the whole world, blockchain has successfully gained popularity. Thanks to all the conferences taking place at the global level which have made us understand the importance of blockchain, its concepts and its features. Though Blockchains have its own issues which needs to be resolved but it also has several benefits. Among many, one is the concept of Smart Contracts.
It is one of the most utilized and successful applications of the blockchain technology. The concept of smart contracts was first introduced by a computer scientist and a cryptographer named Nick Szabo in 1997 long before bitcoin was even introduced. However, it was 2013, when a 19-year-old programmer Vitalik Buterin integrated super contracts with blockchain technology and called it Ethereum. Later, this gained the public attention due to its sundry of advantages.
What is a Smart Contract?
These contracts can help you in exchanging money, property, or anything having a value with high speed and transparencies while avoiding all the middleman and their fees. Basically, it is a crypto contract or a type of computer program which controls the transfer of digital currencies or assets between 2 parties after a certain set of agreements or conditions. It avoids any conflict which can arise in paper currencies.
In simple words, it is a complex computer protocol which facilitates, verifies and enforces the terms of any contract between 2 or more parties without the involvement of any third party saving the time as well as money. It has a set of rules which must be agreed by all the involved parties and if these are met then these contracts execute itself to produce the result.
With Smart Contracts, you can exchange anything including, money, shares, properties and so on. Herein, all the transactions made are immutable i.e. cannot be changed, irreversible and fully trackable. Now different platforms like Ethereum, Bitcoin and Nxt uses the concept of smart contracts.
Now, Let’s Understand it by Couple of Real-World Scenarios
Scenario 1: Buying a Car
Let’s assume that you want to buy a car. You know that there are numerous steps and processes which needs to get done. If you can’t pay all the money at once then probably, you’ll go for a loan or financing option that require several background checks, filling different forms and identity verification, right?
This might include several processes involving middleman’s commissions and fees. All these increases the duration as well as the amount for buying the car. It can be tedious for some and hectic for many.
Now imagine another case, where instead of going to all these middlemen, long verification processes and background checks, you directly show all your details stored in a blockchain to the lenders and they can quickly make a decision whether to credit you the amount or not. Here, a smart contract comes to play which can be created for you, your bank and a car dealer. Once everyone gets assurity then your bank can release the payment to the car dealer and in return, you get the car from your dealer after meeting all the terms. All the process is automatic, transparent and immutable which can be checked or tracked any time by any party.
Scenario 2: Renting an Apartment
Assume that the agreement of your current rented apartment is about to expire and you are looking for a shift. Generally, the process would involve going to the broker, paying the commission, paying for all the paperwork, NOC requiring the verification and other procedures. These all can take a lot of your time and money.
Now imagine a situation, where you can do all these through a blockchain by digitally making a payment to your next landlord in cryptocurrency without any involvement of a broker. Herein, you pay directly to the owner, he verifies all your details and arranges all the paperwork after which he or she gives you the digital entry key. If all the terms are agreed by both the parties, you’ll receive the digital key on time and he would get the money or else you would get your refund immediately.
This type of smart contracts work on “If & Then” principle i.e. If the owner gives you the key then anyhow, he’ll receive the money and if he doesn’t give you the key then you get your refund. Neither you nor the owner can alter the documents or amount without coordinating with the other party, making it a faultless delivery system.
The Advantages of Using Smart Contracts
It provides a multitude of benefits such as security, assurance, speed, transparency and others as mentioned below.
These contracts come with the automated coding features which are currently the safest option in encrypted technology. It is one of the most secure options for critical processes generating more value to the transactions.
This feature of the Smart Contract is also shared by the blockchain technology. It provides 100% of transparency of all the details and conditions mentioned in the contract with all the involved parties. It eliminates all the possibility of conflicts regarding terms or any other details between them. Therefore, avoiding any form of miscommunication or communication gaps between the agreeing sides.
It is super accurate and avoids all the errors which are generally experienced during manually filling the forms. It is also known for its precision i.e. when it is executed, it automatically gets everything done. Smart contracts are designed to avoid any mishaps which otherwise is only noticeable until something goes wrong.
Smart Contracts provides complete autonomy, therefore, eliminating the requirement of any intermediaries such as a broker or an agent or someone else. As its execution is managed directly by the involved parties, it helps in saving your time as well as money.
In order to finish all the documentation process in the real world, it takes a lot of our time. This is mostly due to approaching any third parties or middleman for their assistance. Nevertheless, it dissolves all the external involvement since everything can be found on the internet in the pieces of software codes. This results in completing any transactions or deal at incredible speed reducing all the extra time.
Imagine the horror when somehow you misplace or lose any agreement or other important documents. As all the data is stored in a blockchain which can’t be deleted or altered, these contracts can serve as a good back up for all your documents. You can recover all the documents from the backups at any given time.
Its highly secure and transparent nature automatically build the trust among its users. Additionally, its different properties avoid the requirement of any lawsuit filing as it will only execute when all the terms are agreed by both the parties making it reliable. Furthermore, all your documents are also encrypted which avoid its access to an unknown individual.
It is not as significant as all the above-discussed points but yes, it eliminates the demand of paper, the filing of any physical forms or carrying the documents with you all the time. At one side it saves paperwork and on another side it also helps in maintaining long and complex records for the global organizations, banks, governments and others.
Apart from all these, there is a multitude of other advantages or benefits of Smart Contracts which I didn’t even mentioned here. If you remember any other plus points then do mention in the below comments and let others know the true potential of Smart Contracts!
Meanwhile, if you are keen to know more about it and are curious to learn the concepts of Blockchains or Smart Contracts then you can take a look at our course by clicking on the below link.
Blockchain and Cryptocurrency for Beginners
Till then, Keep Reading and Keep Learning!