What are Smart Contracts? – Negotiating possibilities are endless beyond borders.
Nowadays, people have become so legalistic that even simple obligations that needed to be fulfilled by two contracting parties have to be put on paper in the presence of a lawyer. What more with complex ones! Gone are the times when words uttered to commit were enough to be honored as considered accomplished.
But thanks to the rapid advancement of technology and the digital space being invaded by countless inventions and innovations especially blockchain, almost everything is turning smart, that is, computerized and bot-aided — including contracts.
A smart contract is an Internet-based automated process of facilitating, verifying, and enforcing the terms of agreement via a digital transaction between two or more contracting parties for its proper execution without the need for intermediaries like lawyers, banks, or police. The blockchain’s decentralized character makes for a swift, cheap, and secure transaction that is transparent and irreversible. Contracting parties need not be identified, meaning, transactions can be anonymous.
Smart contracts allow the trustless and permissionless exchange of almost anything of value from money, cryptocurrency, shares, real estate, properties, NFTs, etc. Smart contracts can also be used for other circumstances such as insurance premiums, financial derivatives, property law, credit enforcement, breach contracts, legal processes, financial services, accounting, and crowdfunding.
Smart contract use cases are being explored in the fields of government, healthcare, management, supply chain, property records, law, case history, transportation, automobile, and eCommerce.
Nick Szabo in 1994 introduced and coined the phrase “smart contract” after the cryptographer discovered that the distributed ledger technology (DLT) makes it possible for self-executing contracts to be converted into computer codes that can be stored, replicated, and supervised by nodes in the system. This makes the smart contract secure and immutable. Payments were also transferrable in exchange for products or services.
Ethereum programmer and founder Vitalik Buterin explain that as the smart contract transfers a currency or an asset into a program, “the program runs this code and at some point, it automatically validates a condition and it automatically determines whether the asset should go to one person or back to the other person, or whether it should be immediately refunded to the person who sent it, or some combination thereof.”
Benefits of Smart Contracts
Autonomy: Transactions are peer to peer. Possibilities of human error, manipulation, and bias are eliminated as third parties are out of the picture since smart contracts are automated and executed based on preconditions.
Accuracy: Smart contracts do away with cumbersome manual paperwork. Therefore, it is cheaper, faster, and error-free.
Back-up: Blockchain technology makes it possible for documents to be replicated and kept by each participating computer or node in the system. There is no single point of failure and no excuses for lost documents.
Safety: Documents are protected by long encryptions that are impossible to crack. If ever, documents are immutable, irreversible, and can never be deleted.
Savings: With smart contracts, there is no need for costly intermediaries like lawyers and brokers, and expensive witnesses. Fees are at a minimum.
Speed: Smart contracts save you a lot of time with automated processing and taskings via software codes. No more physically going to business entities and manually engaging and spending long hours of waiting and transacting.
Trust: Again, you can trust smart contracts as your documents stay encrypted in a distributed ledger without any possibility of getting lost or manipulated.
Smart contracts are still far from perfect given it being a nascent technology that can be vulnerable to bugs and thriving in unregulated space. Experts and developers are working tirelessly to make smart contracts usable in many other fields and situations as, for example, it automatically executes preconditions without the hope of being rescinded.
Challenges are real but smart contracts are game-changers that have already disrupted countless obsolete mechanisms to keep improving lives and living.
Xion Global Employs Blockchain & Smart Contract Technologies
Blockchain technologies and e-commerce sites are forming an economic ecosystem that is viable to both consumers and online retailers. As online retailers are rapidly adopting the distributed ledger technology in their business processes, they realize new ways of serving their customers. Blockchains offer them an effective way of improving their customer experience. Here are other opportunities that blockchain technologies will create in the e-commerce market.
Smart contracts act like computer programs capable of automating certain tasks based on preset rules. Since blockchains are instrumental in storing them, smart contracts can also automate e-commerce-related processes. They can grow an e-commerce enterprise by cutting down on costs needed to hire staff to carry out tasks that computer programs can automate. Smart contracts can also facilitate inventory management. This means that online retailers can manage the control of inventory items.