Smart contracts can improve a business process’s efficiency, speed, and cost-effectiveness by mitigating the risk of error and reducing waste.
But what exactly are Smart contracts? What sets them apart from other blockchain applications is their widespread adoption.
In this primer, we’ll find out together, beginning with a more precise explanation of what “smart contracts” actually are.
Understanding Smart Contracts: A Definition
In our Entrepreneur’s Guide to Blockchain, we discuss how Smart Contracts are one of the three main features of blockchain.
Smart contracts allow you to transact business with virtually any other party in a transparent, conflict-free Blockchain environment.
Smart contracts are agreements that monitor their fulfilment or nonfulfillment and take appropriate action based on predetermined conditions.
Discussing smart contracts and knowing which platform (EOS or Ethereum) is currently considered the best is essential.
Now that you understand what we mean when we say “Smart Contracts”, thanks to our “Smart Contracts Explained” section, we can get down to the meat of our bait: the advantages and disadvantages of using Smart Contracts.
Now that we have a standard definition of “smart contracts,” let’s delve deeper into the inner workings of this blockchain idea.
Features and Advantages of Smart Contracts
The decentralised nature of the blockchain that supports smart contracts is arguably its greatest strength. They don’t call for any outside help to get it done. What this means is that independence is preserved.
The foundation of a smart contract is a detailed documentation of all the contract’s terms and conditions.
The elimination of dispute cases is a significant advantage of smart contracts.
Every party to a Smart Contract can view and access the TnCs at any time, removing any potential for disagreement over their interpretation. Furthermore, the potential for dispute is reduced because smart contracts are clear and contain no fine print.
Because they are computer programmes, Smart Contracts can process financial transactions much more quickly than traditional contracts, which require extensive paperwork and time to draught.
5. Data Storage
Because smart contracts document a set of crucial transactional details, the information you provide during the contracting process is preserved in perpetuity.
Once more, Smart Contracts are stamped with many features such as Openness, Safety, and Independence, with no room for bias, manipulation, or error. The ecosystem gains confidence as a result.
7. Cost Saving
Smart contracts reduce the cost of implementation by automating the majority of tasks and doing away with third-party intermediaries.
8. Strong Back-Up System
When a data storage device fails, parties can quickly and easily access a duplicate copy of all transactions thanks to the replication feature of smart contracts.
Now that we have that sorted out, we can proceed to the next section of this smart contract guide, which will focus on the practical applications of smart contracts.
Using Smart Contracts in a Variety of Settings
(1) Banking and Insurance
Smart contracts have many applications in the financial sector and can significantly alter the status quo of services.
Clearing trades entails coordinating the approval process between trading partners and transferring funds following the determination of trade settlement amounts.
Once the claim has been routed, checked for errors, and approved, the payout will be transferred to the user. This payout will be based on the claim type and the underlying policy.
(2) Health Care
Some of the many ways in which smart contracts are altering the healthcare industry are as follows:
- After establishing multi-signature approval between providers and patients, EMR will allow transfer or access to the health record.
- Micropayments to users in exchange for their participation in medical studies provide researchers with access to users’ health data.
- Reward patients for reaching certain health-related milestones by keeping tabs on their progress through the various Internet of Things devices they use.
- The right of a media’s copyright holder to grant licences in any manner they see fit.
- Processes that were once done manually but are now automated transactional systems.
- Enhanced processing speed, precision, and efficiency without increasing costs
(4) Public Sector Voting
Blockchain technology allows for the public storage of data. With the help of Smart Contracts, this data can be sent to the appropriate recipients while keeping the data owner informed of the process.
(5) Supply Chain
Smart contracts’ proliferation in the supply chain is liberating many other previously impossible operations, including –
When a required number has approved a letter of credit of signatories, the funds can be transferred to the beneficiary.
The Provenance of Goods Act facilitates the distribution of port payments following a change in custody of bills of lading. Additionally, it enables a supply chain of custody, where the party in control can record pertinent information about the product.
What Smart Contracts Does Not Promise To Do
1. Relative Simplicity in Making Adjustments
Smart Contracts, being a blockchain component, enjoy the same immutability advantages as blockchain. While there are security benefits to being immutable, there are also some drawbacks.
Once a smart contract has been deployed and executed, even the most minor coding error can prove expensive and time-consuming to fix.
De-facto mutability is one approach defi smart contract development services providers take to address this issue. Developers adhere to the de-facto mutability principle by placing pieces of code in other contracts and storing the addresses of which contracts to call in the elastic storage, despite the code being immutable in several senses.
2. Cases of Loophole
Second, grey areas involving the “implied covenant of good faith and fair dealing” have caused legal disputes. Good faith is a principle in American law that requires contracting parties to act in good faith toward one another and not attempt to gain an advantage unfairly.
3. Disqualification of Intermediaries
The elimination of third parties presents significant difficulty for Smart contracts. Even though doing away with intermediaries has become a paradigm for Blockchain and Smart Contract, neither of these ideas accomplish this.
4. Legal Unclearness
Smart Contracts in the blockchain ecosystem depend on disputes to function correctly. Unlike traditional paper contracts, where it may occur due to an ambiguous statement like “Sufficient Cause,” in a Smart Contract, it may appear as soon as the user passes a statement saying that the code is bugged.
Users will be forced to initiate legal proceedings to settle the dispute, defeating the purpose of the Smart Contract in the first place.
Improving Smart Contract’s Weaknesses
Either you find a way around the concept’s flaws by blindly embracing it in the hopes that it will revolutionise your business, or you make the smart choice that will render your Smart Contract, be it an Ethereum Smart Contract or one based on any other platform, hack-proof.
Hiring a team of leading DeFi development company who are familiar with the concept, understand Parallel Programming, and know the different types of bugs that can arise when writing the Smart Contract code is a good course of action.