Smart Contracts Explained: Learn How to Make the Most of It

The usage of machines was pretty much limited to hardware doing the functionalities that the software would tell it to. It gained much more purpose with the evolution of the internet and programming. In the 21^st century, machines and programming have been used to make things quicker and easier for us. Right from banking services to the process of eating your favorite food, everything is executed on pre-programmed codes which in simpler terms are called applications. 

It was only a matter of time before the predefined codes would take over the sensitive matter of money handling. One such prediction was made by an American computer scientist, law scholar and a fine cryptographer Nick Szabo that soon you would see automated programs performing your most basic and most important tasks. Nick Szabo referred to the vending machines as the first devices to use smart contract where there was no human intervention and the whole transaction was monitored and executed by a few predefined codes. Of course things were not too fancy back then but Mr. Szabo could see the future better than his peers. 

Fast forward to the early 2020s and we are now seeing the whole concept shaping up. The whole point of smart contracts is to avoid both human intervention and human resource. Given the volume of transactions and its subsequent irregularities happening across the globe, it is only fair that tech companies came up with platforms to make things easier and faster. 

What are Smart Contracts?

Smart contracts, like digital currencies are a bunch of codes written on the blockchain, both accessible to everyone and immutable by default. You can think of them as software programs that perform tasks based on the programming. Most transactions still require human resource and intervention. Companies spend millions of dollars to host data that they need to automate transactions. This data is the transactional codes you go through while making those transactions and each company has its own set of codes to execute these. On top of that, each company also requires physical space to store the data and yet the chances of data duplication or theft are sizable. 

Smart contracts propose the same automation of codes to execute simple and critical tasks like financial transactions but on a rather economic and convenient scale. Since they are a set of codes written on blockchains, they inherit some of the key traits of the blockchain ecosystem. Some of its key benefit include:

Immutable:

Like its currency cousins, digital smart contracts cannot be edited or duplicated. These codes can be written after formation of the transaction policies and can never be changed then onwards. This eliminates any trust issues that both the parties might have with regards to the terms of transactions.

Transparency:

The data on blockchain is transparent and secure. It is accessible to everyone on the chain hence it adds the much needed transparency in financial transactions. Being an open source platform, the access to these smart contracts is much easier and better to adapt for its use cases.

Decentralized:

Unlike the programs owned by multiple financial institutions or merchants, smart contracts are placed on a blockchain that is not stored anywhere centrally. The storage of it is distributed and hence it solves any threat to a centralized programming might encounter. 

Self-imposing:

Smart contracts are self-imposing and there is no room for any ambiguity. Since they are immutable, if prerequisites are matched, the functions are carried out and if not, they are at a halt. This self-imposing characteristic makes smart contracts very efficient, quick and free from any dubious ambiguity. 

Where Do We Stand With Smart Contracts Today?

Smart contracts inherit the very basic concept of conditioning from programming with its major structure depending on “if” & “then”. It works error free but only when conditions are met. Currently, like for any other invention, the masses are a bit apprehensive about the whole decentralized blockchain based infrastructure. The authorities too fear having no control over the proceedings and like to overuse the term “volatile” to spread higher doses of caution among people. Keeping a close look at the recent developments is recommended for any smart contract development company as the acceptance hasn’t been mainstream but things are changing at a very rapid pace.

Financial institutes are still shy of using a public platform to adhere to their transactional policies and people are happy to pay the premium for each party they transact with. We might not be too far away from leading mainstream organizations wanting to adapt to this concept but for now, it only remains an exciting prospect. How exciting you may ask? Let us have a look at it.

To make a strong case for smart contracts to replace the existing ecosystem, one can use the following arguments.

Cost effective:

Smart contracts are super cost-effective. They cost a fraction of what the existing maintenance and premium fees that we all have to bear for individual transaction mediums. Think of every bank, every institute and every department having their own databases of programs that execute their functions. Having distributed storage and open-source coding are huge advantages for blockchain development services as it eliminates any need to have mammoth storage spaces for each institute & makes the whole program very cost savvy.

Faster:

In any conventional transaction, you will notice third parties and platforms being involved heavily. Smart contracts make things quicker by acting as a sole medium to execute all the functions. Once the prerequisites are met, the actions are automatically taken which removes all the back and forth that the payment gateways and programs have to do in order to match the conditions and perform the tasks.

Safer:

Since smart contracts are based on blockchains, they inherit the biggest traits of it, one of which notably being immutability. Once agreed and written, the code in a smart contract cannot be changed or altered. This makes the whole process very safe despite the terms being visible and accessible to the public domain. It is impossible to hack or alter the code on the blockchain which makes the process a lot safer than its current state.

Accurate:

Despite the rising infrastructural superiorities, we often encounter errors in automated systems due to the lag in conditioning and altering of programming. Smart contracts act like calculators where there is zero room for any error and the tasks are performed at a robotic accuracy. Think of performing basic math tasks on a calculator. Performing massive financial tasks based on smart contracts can be as simple and accurate as that.

Typical Use Cases of Smart Contracts 

A decentralized and open source accurate programming platform can be used at multiple avenues. Currently both Bitcoin & Ethereum provide their blockchains for organizations to write their smart contracts and execute them. The obvious use cases include all the financial transactions where you have multiple conditions and you need careful executions for all the conditions.A very notable use case for smart codes can be for electoral voting. There has been a running debate in almost all countries to find an alternative to error prone voting machines and age old postal ballots. Having an open source code that works with laser sharp accuracies and provides safe and quick results can be used widely for electoral voting processes.

Another very practical use case for smart contracts is the ownership certification. Registering an asset can be quite a task. The enormity of the task depends on how big your asset is. Replacing the age-old documentation and hypothecation processes with smart irreplaceable and immutable codes that are written out in the public domain sounds like a very sensible idea if laid out right. 

Summary

There are still massive apprehensions towards decentralizing the programming for all financial transactions on a single platform. Another concern is about interpretation. Cases of loan mortgages and insurances are very subjective and it may require lengthy coding for the artificial intelligence to automate. There are doubts over the overall sustainability of the blockchain as well. But what stays a constant amidst all this is the mere mention of uniformity. It may have started to get a little tiring for consumers to adhere to privacy policies and terms and conditions of every product they buy or every service they entertain. There seems to be a need for a uniform solution for all major relevant functions but are decentralized blockchains the answer to that? The blockchain ecosystem is still taking baby steps towards getting official recognition from the authorities and gaining trust among the mainstream. One thing is for sure though, if executed correctly, the blockchain based solutions can change our lives for good. 

Kalpesh Shah

Kalpesh is a Technology and Business consultant serving IoT app development services and resilient blockchain development services for 10 years. His expertise can make your business overcome any obstacles while you are dealing with the IoT or Crypto Development platform.