Stupid Contracts Made a Mess. Smart Contracts Will Clean it Up.

Blockchain

In 1996, American cryptographer and programmer, Nick Szabo conceived the idea of a system that allows entities to record contracts in the form of computer codes, he called this concept “smart contracts.” Szabo’s idea described how digital protocols functioning in a controlled environment will automatically execute transactions once the agreed upon conditions are attained.

Ten years later, the blockchain was invented, and Szabo’s concept became a reality. Today, we have contracts that are autonomous, highly efficient, trustless, secure and able to complete transactions in record time. Smart contracts are becoming increasingly popular; in fact, Gartner – a global research and advisory firm estimates that more than 25% of global organizations will make use of smart contracts by 2022.

The Evolution of Contracts

In its most rudimentary form, we can easily define a contract as a promise enforced by law. Contracts require an agreement between two or more parties; one usually makes an offer while the other accepts it. For hundreds of years, humans have been making use of contracts to issue binding agreements and conduct business.

In primitive societies, agreements were made orally while compliance was enforced through kinship ties or religious authority. When writing was invented, everything changed. Historical documents indicate that some of the earliest concepts of contacts can be traced back to ancient Rome. As society became more complex, these ‘proto’ contracts also had to evolve to meet up with modern demands.

In today’s world, contracts have expanded in usage so much that they now form a core aspect of modern business and global trade. They have a wide range of business applications including fixing resource costs, limiting obligations, drafting non-compete agreements, and so much more.

Stupid vs. Smart

Our tech-driven society has greatly influenced the business world, which now operates in a continuously fast-paced mode. Businesses like to close deals quickly – after all, ‘time is money.’ However, when making deals, the traditional contract ends up slowing things down. Drafting them requires a lot of time and procedures. Stakeholders employ a team of expensive legal experts, deliberate several rounds of negotiations, participate in back and forth draft phases before the final conditions are agreed upon. Even after this, there is still a chance that there could be business conflicts prompting renegotiations.

Smart contracts, on the other hand, do not require the hectic process required to draft traditional contracts. They are self-executing, and self-enforcing and do not need the influence of third parties. Smart contracts consist of pieces of software that help extend the blockchain’s function from serving as a financial transaction record keeper to completing multi-party agreements automatically. The use of smart contracts allows for the exchange of goods, money, securities, real estate and other assets. The distributed ledger acts as a storage space for smart contracts and thanks to its immutability, details of the contract cannot be altered, forged or erased, while data encryption protects the party’s identities.

Why Smart is Better?

The smart contract concept brings a lot to the table, and it is touted as one of the major blockchain applications that will transform the world. Here are some reasons why smart contracts are better than their traditional counterparts.

Real-time update/Speed: smart contracts automate tasks which greatly speed up business processes compared to conventional contracts processed by hand.

Clarity/Accuracy: by default, a smart contract demands that all conditions be recorded explicitly.

Elimination of Intermediaries: the implementation of smart contracts makes hiring third parties or trust services redundant.

Reduced Costs: by limiting human intervention and third parties like legal counsel, smart contracts can help businesses save costs.

Inherent Trust: smart contract’s intrinsic features like autonomy, security, immutability, and transparency help foster trust between parties.

Smart Industries??

Smart contracts can be applied to many industries as startups around the world are already finding new ways to integrate these digital contracts into their overall business operations. Here are some industries being disrupted by fast-rising blockchain startups utilizing smart contract innovations:

Banking & Investment: BlockState, a technology facilitator for investment banks, is exploring ways in which smart contracts can be leveraged to speed up banking processes like issuing, clearing and settling of bonds/loans by reducing  the number of intermediaries involved and increasing transparency. BlockState recently released a digital asset index product, on their own technology stack and are preparing the tokenization of further funds and issuing of bonds.

Supply Chain: Vechain, a public blockchain platform, is focused on providing supply management solutions. The VeChainThor Ecosystem will allow the transfer of value to take place on its blockchain by utilizing programmable and executable smart contracts.

Food Industry: TEFood, a publicly accessible food traceability system that will introduce blockchain protocols and smart contracts for creating a trusted transaction ledger for the integration of supply chain participants and authorities into a singular system.

Energy Sector: Restart Energy, a blockchain energy trading platform with a specific focus on emerging countries. Restart Energy will connect producers and consumers by integrating smart contract protocols into the existing energy grid.

Even so, we are merely witnessing the tip of the iceberg – think of it like the internet in its early ‘90s days. Still, there may currently be a few limitations of limited number of transactions per second or the lack of interoperability between different blockchains. As the technology improves, the adoption of smart contracts will increase while ushering us into a new age – the age of “smart industries.”

#Blockchain

Author: Cryptobonx

Cryptobonx is a Crypto –Currency and Blockchain Enthusiast.He is a believer of transforming complex information into simple, actionable content.

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