We’ve written extensively on the potential use cases for blockchain as perhaps the most dominant and promising technology today. Moreover, professionals and laymen alike have been increasingly using the word “blockchain” in everyday communication. It seems like the concept is suddenly everywhere around us. However, if we dig deeper, it seems not many people can name examples of actual blockchain use. To remedy this, we’ve decided to cover one of the most prominent real-life blockchain applications – smart contracts. This blockchain application is already active in several different areas (arts, music, real estate) with quality results. Additionally, due to Ethereum’s massive upward swing, smart contracts are likely the first blockchain product to go fully mainstream.
What are smart contracts?
In analog contracts, there are two contractual parties and a trusted third party which often represents a guarantor of execution. Smart contracts aim to simplify this process to its bare essentials. Smart contracts rely on the Ethereum blockchain infrastructure to function and are usually written in Solidity and Serpent programming languages.
Perhaps the best analogy for understanding smart contracts is through something which we’ve all used for decades – a vending machine. The machine takes the buyer’s money, holds it, and waits for the buyer to select the goods they want. After the buyer pushes the desired item button, the machine’s mechanism releases the wares. Efficient and direct exchange, with no middleman.
Smart contracts represent a model of self-executing contracts where the contracting parties have agreed on predefined terms and conditions. These terms and conditions are hard-written into the code and can be verified by independent peers on the blockchain. Essentially, it’s a function based on “if (or when)/then” – something we’re all quite familiar with. Once these conditions are met, the contractual obligations are executed and fulfilled, thus shielding both sides from any potential misbehavior. As with any typical contract, these smart contracts can include the exchange of funds, property titles, various assets, and more.
After a transaction completes, the blockchain updates to reflect this event. The fact that the transaction was executed means it can no longer be changed due to blockchain’s immutability property. Furthermore, only authorized parties can see the results of this transaction, granting necessary privacy.
Resource advantages of smart contracts
As with anything predicated on automation, the first benefit that comes to mind is higher efficiency – time savings. On top of that, smart contracts also yield tangible costs-savings. Here are the two main boons you can expect to see from these real life blockchain applications:
- Simplification and streamlining
We’ve mentioned automation as one of the key facilitators of efficiency. This automation process focuses on cutting out the middleman and reducing unnecessary layers in execution of contractual obligations. Through the use of smart contracts, execution of deals can take mere minutes – previously programmed conditions specifically allow this action. As soon as a condition happens, the relevant contract action will materialize without third party delays. The process of engaging in these types of contracts is also hugely simplified compared to the traditional method. Less paperwork, fewer steps, minimum waiting times and maximum intuitiveness.
- Time and cost savings
As a direct function of the simplification described above, contracting parties generate substantial savings in terms of time. On top of that, removing the middlemen results in actual and quantifiable cost savings. Since smart contracts don’t employ intermediaries, the only transaction costs originate from the blockchain’s own infrastructure related to contract execution.
Safe, Trustworthy and Auditable
Besides increased intuitiveness and lower costs, smart contracts bring several other notable benefits. One shared thing about them all is very high scalability. Here are two more important areas in which smart contracts shine and bring tremendous value to the market:
- Improved Security Standards
The more intermediaries in a process, the higher the chance of security breaches and privacy violations. Every step of the process is a potential vulnerability. Since blockchain uses cryptography with public and private keys when handling smart contracts, the data is virtually untouchable. The decentralized nature of the system alongside digital signatures means only the directly involved parties can decode the data.
- Trust, Transparency and Accuracy
With smart contracts, all the terms and conditions are clear and embedded in the form from the get-go. After a condition materializes, it acts as a direct trigger for a remittance to occur and is subsequently recorded. Very high security standards bring increased comfort regarding trust and transparency, and the accuracy of blockchain data is nearly unparalleled. Blockchain transactions can easily be audited and are constantly available. Essentially, there’s an ever-present digital trail that is almost impossible to forge.
Smart Contracts in the Real World
Since blockchain is a platform technology, its applications can permeate various industries, creative uses and specific niches. Given the fact that every business interaction is fundamentally a contractual relationship, smart contracts can cover basically every domain. The financial world is also pursuing this idea, with names like Barclays looking to leverage smart contracts.
There’s a host of companies handling development of new solutions and business cases in this playground. In the world of music, InMusik is using smart contracts to distribute royalty revenues towards recipients and creators. Similarly, Ascribe is a digital arts platform which helps combat fraud and enables publication fees. Smart contracts are also finding their way into traditionally deluxe industries such as diamonds. De Beers Group has launched Tracr to ensure traceability, authenticity and supply chain robustness when it comes to these precious objects. Way back in 2017, a real estate startup named Propy successfully facilitated a blockchain transaction of house ownership in Ukraine.
All of these examples utilize the smart contract principle and prove that the market’s only going to get busier. Real-life blockchain applications of smart contracts are finding their way into everyday interactions and the development efforts are following closely. Going forward, we can expect to see new use cases in decentralized finance, real estate, and the health industry. As always, we’ll keep you up to date with the latest breakthroughs in this area.
