In today’s article, we will be discussing the general idea behind smart contracts – what they are, how they can help us improve our lifestyle, and help society evolve even further. Many cryptocurrencies use smart contracts – and it’s always a great idea to be informed about anything you’re invested in.
Smart contracts: blockchain technology that could replace lawyers
A smart contract is a computerized protocol designed to digitally facilitate, verify, or enforce the negotiation or execution of a contract. Smart contracts allow for credible transactions without the need for a third party.
One of the best things about the blockchain is that because it is a decentralized system between all the allowed parties, you do not need to pay intermediaries and save you time. Blockchains have their problems, but they are undeniably faster, cheaper, and more secure than traditional systems.
In 1994, Nick Szabo, a legal scientist, and cryptographer realized that a decentralized registry could be used for smart contracts, otherwise known as self-execution contracts, blockchain contracts, or digital contracts. In this format, contracts could be converted into computer codes, stored and reproduced on the system, and monitored by the network of computers running the blockchain. This would also lead to feedback from the registry, such as transferring money and receiving the product or service.
What are smart contracts in simple terms?
Smart contracts help you exchange money, property, shares, or any other valuables in a transparent, conflict-free manner while avoiding the services of an intermediary.
The best way to describe contracts is by comparing the technology to how the process would go in a real case example. Usually, you go to a lawyer or a notary, pay them a fee, and wait until you receive the documents, property, etc. With smart contracts, you replace the lawyer with the blockchain. Moreover, contracts define the rules and obligations involved in an agreement in the same way as a traditional contract and automatically implement them.
Understanding smart contracts through Buterin’s vision
As Vitalik Buterin, the 27-year-old behind Ethereum, explained at a DC Blockchain Summit, that in a smart contractual approach, an asset or a currency is transferred to a program, “and the program runs this code at a time automatically validates a condition and determines whether the asset should go to one person or back to the other person or whether it should be reimbursed immediately to the sender or a combination thereof.” In the meantime, the decentralized register also stores and reproduces the document, which gives it particular security and immutability.
Where can smart contracts be used?
You can use smart contracts for all sorts of situations ranging from derivative financial instruments to insurance premiums, property law, credits, crowdfunding agreements, almost any time of financial services, and much more.
Jerry Cuomo, IBM’s vice president of blockchain technologies, believes contracts can be used across the chain, from financial services to healthcare and insurance. Here are a couple of examples:
Contracts in Management
Not only does the blockchain provide a single registry as a reliable source, but it also clears up possible communication and workflow issues thanks to its accuracy, transparency, and automated system. Typically, business operations must go back and forth, awaiting approvals and resolving internal or external problems. A blockchain registry streamlines this.
Contracts in Healthcare
Personal health records could be encrypted and stored on the blockchain with a private key that only allows access to certain people. The same strategy could be used to ensure that research is conducted through HIPAA laws (securely and confidentially). Operating receipts could be stored on a blockchain and automatically sent to insurance providers as proof of delivery. The blockchain could also be used for the general management of healthcare, such as the supervision of medicines, compliance with regulations, test results, and supply management.
To sum things up, the main idea here is that a smart contract is a computerized protocol designed to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Another crucial aspect that smart contracts do is allowing secure transactions without a third party. The most essential benefits that contracts can offer you are autonomy, reliability, backup, security, speed, accuracy, and last but not least, help you save money.
In addition, to make things even more precise, here’s a visualization of an actual case use of smart contracts.