Smart Contracts Development | Use Cases
Before now, contracts and agreements were made based on trust, hope, and the belief that one party in a deal will not outsmart another. As dangerous as this sounds, arrangements have been made that way for many years, which have produced many stories of scams, frauds, failure or refusal to fulfill agreement conditions, and the likes of it, thereby leading to a loss in money.
While individuals or organizations live in fear every time they are about to go into agreements of being scammed or defrauded, various means have been devised to stop the dangers of getting into the hands of individuals who find different means of fooling innocent people with their hard-earned money. Still, all couldn’t give a lasting solution. It is to this effect that smart contracts were introduced.
What Is a Smart Contract?
Smart contracts are simple programs or protocols stored on the blockchain to enable self-executing contracts on which two or more contracting parties can agree on the terms and conditions of a contract. There is a contract between two parties when one party wants to buy a product, and the other party is willing to sell. Inside the contract are terms and conditions guiding the transaction, including the amount to be paid by the buying party, means of payment, agreed day of payment, day of delivery by the selling party, etc.
When all of these are written in a line of code or protocols and saved on the blockchain, it is regarded as a smart contract. Previously, for a contract to be successful, it is essential to involve legal third-party or central authorities who are charged with enforcing the contract terms between both parties. The enforcers ensure all parties involved carry out their part of the bargain faithfully. With a smart contract, it is now possible for periods of a contract to be enforced without the interference of governmental authorities and legal parties to be involved as the system is designed to only carry out certain functions after when a party has fulfilled their part of the agreement without which payment which they are due to will not be authorized by the system.
History Of Smart Contracts
In a bid to find a solution to contract fraud and to create self-executing and self-enforcing contracts, a computer scientist called Nick Szabo (1994 proposed a computer protocol that will define a contract's terms and complete them. Nick Szabo compared the smart contract and the vending machine in explaining the smart contract. Please think of the whole experience of going to a store to get a candy bar and waiting for the cashier to fulfill the part of the transaction of giving you the candy after you've paid for it. The vending machine was built to satisfy the other part of the transaction by independently and almost immediately making available the candy bar after you must have paid and your payment has been verified. In this situation, the case is not needed anymore.
Just like the vending machine, Nick Szabo suggested a computerized transaction protocol that independently defines a contract's terms and can enforce and complete it without intermediaries. The contracting parties must put the contract terms into a line of code, fulfill their obligations and watch the smart contract execute accordingly.
How Safe Is The Smart Contract?
Smart contracts are safe and secure as they run on the Ethereum Blockchain. Smart contracts are decentralized, which means they are not run or controlled by just one party who will serve as the intermediary. The database of smart contracts is shared and run by computers, also called nodes, scattered around the world. By this, it becomes almost impossible to hack the network. For a stranger to have access to the network, they must be brought in by those already on the web. To get entry into the network, a hacker will have to hack through more than half of the computers on the network. As a result, two parties can get on a smart contract without fear of one party manipulating the web in their favor.
How Do Smart Contracts Work?
Here is the step-by-step process through which the parties can get their agreement on a smart contract:
Let’s say Donald and James are about to start a business that entails Donald, who is in China, exporting raw materials to James, who is in the U.S.A., to produce finished products. They need to enter into a contract to ensure that while Donald sends the raw materials, James duly makes the payments as negotiated by both parties. Both will have to follow the following steps to get their agreement on a smart contract;
Step 1: Donald and James will walk up to the developers to explain the terms and conditions of their agreement. They will also let the developers know the response to each action by both parties.
Step 2: They discuss further issues on payment authorization at the provision of a shipment receipt and other complex operations, which are essential parts of the agreement.
Step 3: After all that has been encoded, the developers will have to use writing platforms of smart contracts to write and test the logic.
Step 4: The developers then send the written application to another team of experts to vet the security of the smart contract.
Step 5: When the security has been thoroughly tested and authorized, the contract is deployed on an existing blockchain.
Step 6: Then, the configuration of the smart contract to receive and react to event updates from a secure streaming data source called “oracle.”
Step 7: The smart contract begins execution.
Industries Where Smart Contracts Can Be Used
Smart contracts can be used in any and every industry where contracts are being used and deployed. There is no limit to how a smart contract can be used and what it can be used for, so all industries, including banking, energy, agriculture, insurance, hospitality, art, movie, music, telecommunications, transport, construction, e-government, commerce industries can all make use of smart contracts and enjoy the smooth run of business activities.
Benefits Of Smart Contracts
- Of the many benefits of smart contracts, I'd like to make the ease of doing business come first, as its primary purpose is to enable a smooth run of companies, locally and internationally.
- Smart contracts are self-executing and self-enforcing. This means they can execute every term guiding a contract and force all parties to do their parts of the agreement without the help of a third-party enforcing agency.
- They are reliable, trustworthy, and transparent.
- They are more accessible and cheaper than hiring lawyers or contract enforcement agencies.
- They make business transactions run smoothly and faster. This is so because, with smart contracts, there’s no need to fix endless meetings to ensure that the terms of the agreement are well understood or to call a party to order when not carrying out their part of the obligations.
- They are very safe and secure. Each contract record is connected to the previous and subsequent contract records to ensure that each paper is not altered or changed.
Aside from reducing contract fraud, smart contracts have made it possible for individuals and parties to enter into an agreement or contract without even trusting each other, as long as the smart contract is there to enforce and execute the contract terms. They also ensure contracting parties are not paying a fee to enter a contract. Smart contracts will, in future years, be the go-to platform for contracting parties.