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What are Smart Contracts?
A smart contract, similar to any other contract, refers to the terms of a deal or agreement. But there’s a catch! Unlike traditional contracts, smart contracts are programs that run and are executed through code on the Blockchain, such as Ethereum.
Its primary job is to securely automate and decentralize the digital agreement process, reducing intermediary involvement, cost and time.
Moreover, the integral components of a smart contract consist of three virtual objects: The signatories, which refer to individuals involved in smart contracts’ digital signature processes, using digital signatures for contract approval and disapproval terms; the topic of agreement or arrangement; and the fixed terms.
How do Smart Contracts Work?
Smart contracts can be programmed by a blockchain developer using the following statements: if/when, and then. A computer network executes the action once the predetermined conditions are met and verified.
These actions include releasing funds to relevant parties, vehicle registration, sending notifications, and issuing tokens/tickets. Once this transaction is complete, the Blockchain is updated. As a final result, the transaction can’t be changed, and only those with access can see the final results.
At present, Ethereum is the most used and popular smart contracts platform. Here, each smart contract’s code is stored in the Blockchain, allowing interested individuals to inspect the contract’s code and its ongoing state to check it and verify its proper functionality.
To your knowledge, you must pay a fee called “gas” to execute a smart contract on the Ethereum network. Once you finish deploying onto Blockchain, no one can alter smart contracts, not even the creators, in the first place.
Note – Many other cryptocurrency blockchains, such as EOS, Tezos, Tron, Algorand, etc, can efficiently use smart contracts.
Uses of Smart Contracts!
Smart contracts’ uses are broad, from government sectors to healthcare to financial services and the supply chain.
Government Voting System
In a vast democratic country like India, voting is celebrated as the most significant human right. To make it a fair contest for every candidate of all parties, many governments have started implementing smart contracts into their voting systems to create a secure voting environment for all.
And why not? Smart contracts are ledger-protected, which makes them difficult to decode for voting manipulation.
Most importantly, Smart contracts help increase the vote percentage through their integrated system and make the lining up, identification procedure, and form fill-ups quick and reliable.
Healthcare Sector
Blockchain and healthcare have maintained a healthy relationship for quite some time now. The most significant benefit it has added to healthcare is that medical facilities and patients can now store their health records using a blockchain-encoded private key.
Only specific individuals for both sides and no third party would be granted access for privacy concerns during the time of need.
Moreover, you can store all hospital receipts using blockchain technology and activate the automatically shared option with health insurance companies as proof of service.
You can also use this technology to manage your healthcare kits and other supplies and regulate compliance.
Finance Sector
The inclusion of smart contracts in financial services has meticulously changed its approach toward customer assistance and issue-solving.
For example, insurance-providing companies are now efficiently performing error checking, routing, and payment transfer more stably and accurately.
Smart contracts help enable vital tools for bookkeeping and erase the possibility of infiltration of accounting records. Shareholders can take part in the decision-making process using smart contracts.
Supply Chain
Earlier, the supply chain process suffered because of the traditional pen-and-paper format, which caused a longer approval process through multiple channels.
As a result, the fraud and cheating ratio used to stay high all the time.
However, the inclusion of Blockchain in the supply chain system has nullified the entire fraud and risk proportion by delivering an easy-to-access and secure digital version to the supply chain working communities.
Later, smart contracts have made it easy to manage inventory, payment processing, and tasks.
Key Benefits of Smart Contracts
Speed, Accuracy, and efficiency – Smart contracts are digital and highly depend on conditional preferences. Once the conditions are met, the entire process is automated and executed immediately.
Autonomy and Savings – Smart contracts erase the risk of third-party and intermediary manipulation, resulting in error-free agreement confirmation. This process saves both cost and time for the individuals.
Trust and Transparency – Due to the non-involvement of brokers and intermediaries and encryption of records shared amongst participants, there’s no question about altering personal benefits information.
Security – When it comes to data security, the blockchain system assures that all the data transaction records meet the highest encryption method, making it almost impossible to hack under any circumstances.
In Blockchain, each document is connected to previous records on a distributed ledger. This means hackers will find it extremely difficult to alter any records, and if they come close, they will need to modify the entire chain to make changes in a single code.
Smart Contract Limitations
Difficulty changing the process – You will find difficulties changing the smart contracts process. It’s nearly impossible, as a single error in the coding will take enormous time and effort and cost you a fortune to correct.
Loopholes – As per the good faith concept, parties or groups involved in the contract must deal fairly, but won’t benefit much. Meanwhile, matching the term according to the agreement isn’t easy.
Third-Party – The third-party involvement doesn’t entirely vanish as it assumes different roles from those involved in traditional contracts. For instance, you don’t need a lawyer’s help to prepare individual contracts, whereas developers can do it through smart coding.
Indefinite Terms – Contract terms used are difficult to handle and understand. That’s why smart contracts avoid vague terms.
This is some essential information about Smart Contracts that we would like to share with you. Blockchain is indeed an exciting segment to learn and explore, as it is a futuristic approach. It has been used continuously in different technology categories in recent times.
To know more about Smart Contracts and their related topics, visit us at Metizsoft.
