Smart Contracts are computer protocols that are smart enough to enforce, execute, verify and constrain… all by themselves. Smart contracts magnify the utility of blockchain technology. They help automate a lot of rigid processes, saving a lot of time and energy, and boosts efficiency.
Smart contracts might have attracted their well-deserved limelight only because of blockchain, but it precedes the technology by at least a decade. They strive to bring highly evolved practices of contract law to the design of modern protocols of an electronic transaction between strangers on the web.
Nick Szabo, who coined the term ‘smart contract’ defines it in this way: ‘A smart contract is a computerized transaction protocol that executes the terms of a contract. The general objectives are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement), minimize exceptions both malicious and accidental, and minimize the need for trusted intermediaries. Related economic goals include lowering fraud loss, arbitrations and enforcement costs, and other transaction costs’.
The Advantage over Traditional Contracts:
While the surface-advantages that smart contracts bring over traditional contracts stay confined to security, cost-efficiency, and immutability, there are a lot more when you dive deeper.
Smart contracts are executed in computer codes that eliminate the uncertainties associated with language-ambiguity and perception that might arise in traditional contracts. The communication of the contract and the terms of the contract is direct, and it does away with the need for intermediaries and the associated clerical costs. The validation by everyone and the immutability of the record ensure that the smart contract can never be broken.
The Business Potential:
Smart contracts are logical and conditional statements, and they can find their applications in the purchase of goods, services, and rights. It becomes all the more relevant with the frequency of transactions is high, and the parties involved in the transaction are geographically separated.
The most evident applications of the smart contracts lie in financial services like dividend payments, and in managing supply chain and manufacturing. However, the scope of smart contracts is much beyond what has been done until now.
IoT – The Internet of Things network can use smart contracts to ensure data-transfers and even in instigating some actions based on a few parameter-thresholds.
Agriculture – An IoT sensor that can measure land-humidity can trigger irrigation or spraying of pesticides.
Insurance – There have been instances when claims were automatically processed in the event of aircraft delays, thanks to smart contracts.
Real Estate – If a tenant does not pay rent for a considerable amount of time, a smart contract can restrict their entry or terminate their access to utilities like water and electricity.
Healthcare – This is where the possibilities are almost limitless, like accessing real-time health records with no lapses in security, supervising drug overdoses and even sharing patient information for trials can be effected with smart contracts.
What Does The Future Hold!?
In all the possibilities, it has to be remembered that blockchain is still quite nascent, and it will take some time and evolution before it makes its mainstream entry. The legal aspects of the smart contract should also be taken care of since it is essentially a ‘contract’ subject to legal regulations.
The contract laws in some countries are more than 140 years old and yet to evolve from its Colonial Era traps. The blockchain has no single entity collecting information, and data protection standards and the corresponding liabilities for the failure of the same might not be properly adhered to.
Decentralization might be bliss, but the fear of a centralized body to hold accountable might be dismissed by a few purists. There are chances that a person with some advanced knowledge about the technology can create loopholes in the smart contract itself, which might result in loss of data, money, trust, and integrity.
However, there is a growing awareness of blockchain and its possibilities. The evolution of smart contracts to arrive at a fine point balancing traditional values with modern technology is happening. With both these in place, and when they converge at some point in time, we can expect smart contracts to influence, if not control, every sphere of our lives that can be connected with ‘contract’!