In technology, the term “smart contract” is used quite frequently. Many people have heard of smart contracts but don’t know what they are. Simply put, a smart contract is a computer protocol that allows for negotiating and enforcing a contract. Along with this, smart contracts can also be used to facilitate, verify, or enforce the negotiation or performance. Typically, smart contracts are used when performance cannot be trusted, or third-party verification is needed.
A smart contract is self-executing. It means that once the contract conditions are met, the terms of the agreement are automatically carried out. This saves time and money by eliminating the need for a third party to monitor or enforce the contract. Some real-world examples of smart contracts include wills, financial derivatives, insurance premiums, and property law. This article will explore details about what are smart contracts? So let’s dig in.
What are Smart Contracts, And How Do They Work?
Based on the Bitcoin blockchain, smart contracts are lines of code that carry out transactions and agreements between parties without needing a third-party intermediary. Smart contracts can automate many kinds of tasks and commerce, from insurance payouts to selling houses or shares in a company. By automating these tasks, smart contracts can save businesses and individuals time and money.
Smart contracts are written in code and stored on the blockchain. When someone wants to enter a smart contract, they send a transaction to the smart contract address. The transaction includes data used to trigger the execution of the contract. For example, if you were buying a house from someone using a smart contract, you would send a transaction to the smart contract address with your offer price and the address of the escrow service that will hold the funds.
The smart contract code is then executed, and the transaction is recorded on the blockchain. Once the network confirms the transaction, the contract is considered completed.
Smart Contracts And Flight Insurance
Airlines often offer flight insurance to passengers if their flight is delayed or canceled. With a smart contract, this process can be automated. For example, let’s say you buy flight insurance from an airline for a flight from New York to Los Angeles.
If the flight is delayed for more than two hours, the smart contract will automatically send a transaction to the insurance company to pay the claim. This way, you don’t have to worry about filing a claim or dealing with customer service. The whole process is automated and happens automatically, without human intervention.
Voting And Implementation Of Smart Contracts
Another potential use case for smart contracts is in the area of voting. Currently, voting is often done by paper ballot, which can be easily tampered with. With a smart contract, each vote could be stored on the blockchain, and the results could be calculated automatically. This would eliminate the need for counting votes manually, which is often error-prone.
Furthermore, smart contracts could be used to implement voting rules. For example, suppose a certain percentage of the votes is required for a proposal to pass. In that case, the smart contract could automatically calculate the results and determine whether or not the proposal passes. This would make voting more secure, transparent, and faster and easier.
Crowdfunding And Smart Contracts
Crowdfunding is another area where smart contracts can be used. When you participate in a crowdfunding campaign, you send your money to the campaign organizer and trust that they will use the funds as promised. With a smart contract, the funds could be stored in a smart contract and released to the campaign organizer only if they reach their crowdfunding goal.
This would reduce the risk for participants, as they would know their funds are only being used if the campaign succeeds. It would also make it easier to track how the funds are being used, as all transactions would be stored on the blockchain. Just as the image recognition app could be used for identity verification, smart contracts can be used to prove the identity of both parties. This would ensure that the agreement is executed only if both parties are who they say they are.
Safeguarding The Efficacy Of Medications
The pharmaceutical industry is another area where smart contracts can significantly impact. Currently, there is a lot of fraud in the industry, and it is often difficult to track where medications come from and whether or not they are effective. With a smart contract, each batch of medication could be given a unique identifier.
This identifier would be stored on the blockchain, along with information about the manufacturer, the date of manufacture, and the expiration date. When patients receive medication, they can scan the identifier and view it. This would let patients know that they are receiving a legitimate prescription and that it is effective.
Furthermore, smart contracts could be used to track the distribution of medications. This would allow authorities to identify and track down counterfeit medications quickly.
Making International Trading Efficient with Smart Contracts
The international trade industry is another area where smart contracts can significantly impact. Currently, trading goods between countries is very slow and inefficient. With a smart contract, the whole process could be automated.
For example, let’s say you are a US-based company that wants to buy widgets from a UK-based company. With a smart contract, you could automatically send the payment to a UK-based company when the gadgets are delivered. This would eliminate the need for invoices, which can often be lost or delayed. Smart contracts could be used to track the movement of goods. This would allow authorities to identify and track down illegal shipments quickly.