A ‘smart contract’ is a computer program built into a blockchain technology in which the parties to that smart contract use to engage each other in their transactions. In a way, it works in a similar vein as real-world contracts. However, it is explicitly run on a Blockchain technology, a type of distributed ledger system where contracts are recorded, shared and synchronized in their respective electronic ledgers leading to an immutable, nearly unhackable distributed database of digital assets.
Similar to real-world, legally binding contracts, Blockchain smart contract contains a set of rules which is used to discuss terms of an agreement. It automatically authenticates fulfillment and implementation of the terms of the agreement.
The smart contract contains built-in codes which enable Blockchain verification, facilitation, and implementation of a transaction. It is the purest form of distributed ledger automation. Because smart contracts are undeniably faster, cheaper, and more secure than traditional systems and can be used in a diverse range of applications, many industries including banks, insurance, finance, real estate and governments are turning to them.
One of the principal function of government is to appropriate the distribution a country's resources among its citizens. These resources are not limited to physical assets like money or properties but extend to intangibles like order, security and welfare of citizens. Additionally, in the way the ruling government is selected. In the current democratic system used in the United States, resources distribution methodology is centralized, i.e. the citizens are remote from the process.
The centralization of resources distribution methodology means government activities such as taxation and services' implementation are costlier and inefficient. This can be mainly attributed to the large size and intricate nature of these systems.
And here is where Blockchain technology (smart contracts in particular) comes in. Governments can utilize Blockchain smart contracts to decentralize many of these services ensuring privacy, security and involving the citizens in these processes.
The days of traditional contract executions are numbered.
Accurate programming algorithms in core and blockchain properties like decentralization, transparency, fraud resistance, and others make smart contracts a conclusive alternative for establishing business relations and performing transactions.
As an alternative to traditional contracts with a central business model, below are the benefits that smart contracts offer businesses:
Use cases of smart contracts range from digital asset management to business insurance, banking, and finance.
We enumerate some of the top smart contract use cases to further elaborate its applicability.
Business and Financial enterprise can exploit the advantage of smart contracts for accurate and precise financial data documentation. A smart contract enables uniform financial data keeping across organizations. It improves financial reporting and reduces the cost of auditing.
This it does by improving the integrity of data which support increased market stability. They also decrease accounting costs by allowing cost distribution among organizations.
Smart contracts can be used to automate mortgage contracts by connecting the parties automatically and providing a frictionless and error-free process. The smart contract can process payment automatically in real time and release liens from land records when the loan fulfillment is done. The smart contract can improve record visibility for all parties and accelerate payment tracking and verification. These reduce errors and costs connected with manual processes.
Smart contracts can be utilized for land title recording to accelerate property transfers, deter fraud, improve efficiency and transparency of transaction, consolidates confidence in identity and also reduce the cost of auditing.
Smart contracts can be used to deliver instant visibility for every step in a supply chain. Internet of Things devices can trace every movement as a product moves from a factory floor to the store.
They accelerate coarse-level inventory tracking, insurance, and risk prevention and benefitting supply chain financing. Such improve verification and tracing minimize the tendency of theft and fraud.
The character of supply chain players has to be proved over time, including firms, institutions, personalities, facilities, and products.
Smart contracts can enhance the fragmented car insurance process. It can record driving and driver reports, document the policy and allow Internet of Things-equipped vehicles to implement claims immediately after an accident.
They computerize claims processing, authentication, and payment. Each policyholder’s source includes vehicle, driving record, and accident report history. Removing duplicated reporting will yield savings for the users.
With Blockchain smart contracts, individuals can take ownership and control of their digital identity which contains data, digital assets, and reputation.
Individuals get to decide what part of their data is disclosed to counterparties and enterprises are provided with the opportunity to know their customers seamlessly.
With smart contracts in play, counterparties need not hold your sensitive data for transaction verification, thus reducing liability and facilitating concordance in KYC requirements.
Individuals are secured from identity theft as they are in control of which of their digital information gets disclosed.
Smart contracts can also be implemented to improve the quality of clinical trials through enhance cross-institutional reflectiveness. Privacy-conservation computations increase data sharing between institutions while automating patient information.
They can restructure processes for trials, increase access to cross-institution data, which inevitably can enhance confidence in the privacy of patients.