With blockchain technology being adopted by a wide range of industries, many businesses are realizing that it offers a faster, cheaper and more secure alternative to traditional systems. The blockchain is a decentralized system that is accessible by all specified parties, saving time and potential conflict and eliminating the need to pay intermediaries.

Smart contract services are becoming increasingly relevant for business solutions that are developed on the blockchain. However, much like the concept of blockchain technology, smart contracts are often misconstrued as something they are not.

Not every blockchain utilizes smart contracts, but for the blockchain developer looking to create secure business solutions on a decentralized network, it’s critical that they understand what smart contract services are and how they work.  

smart contracts

What Are Smart Contracts?

While the concept of smart contracts might be new to most, they were actually invented in 1994 by a legal scholar and cryptographer named Nick Szabo. He recognized that a decentralized ledger could be used for smart contracts. When used on the blockchain, smart contracts could be converted into computer code, stored and replicated on a system supervised by a network of computers.

In basic terms, smart contracts offer a way to exchange money, property and other valuables in a completely transparent way. In turn, this eliminates the need for a middleman to mediate the transaction between two parties. Similar to a traditional contract, smart contracts are also used to define the rules and penalties that make up an agreement, automatically enforcing the agreed-upon obligations.

How Do Smart Contracts Work?

One simple example of how smart contracts operate can be observed within the Ethereum network. Let’s say a user sends a designated amount of Ether to a friend on a specified date through a smart contract. After creating this contract, the user would push the information to the contract and execute the desired command.

On a larger scale, smart contracts are being used as building blocks for decentralized applications, also known as dApps. Unlike traditional applications, which operate on centralized servers, dApps are built with a backend code that runs on a decentralized peer-to-peer network.

According to the Ethereum Stack Exchange, dApps include frontend code and user interfaces that can be written in any programming language, and then hosted on decentralized storage platforms like Swarm.

On the Ethereum network, blockchain developers are able to program their own smart contracts, described in the Ethereum white paper as autonomous agents. The programming language supports a broader set of computation instructions.

Smart contract services can be used as a safeguard for “multi-signature” accounts, requiring a certain number of people to agree before funds or information can be sent out. They also provide the ability to store data without needing an application, and can also supply utility to other contracts. In fact, smart contracts can be dependent on a sequence of other smart contracts. For example, if one smart contract is used to determine something, it will send those results to another smart contract, which will in turn confirm that eventual determination.   

How Are Smart Contracts Being Used?

Many blockchain proponents believe that smart contracts can be utilized across a wide range of business sectors, from financial services to healthcare. To help you understand how smart contracts are being used, let’s look at some examples in government, management, healthcare and the automotive industry.

Smart contracts offer an incredibly secure way to protect voting systems from corruption. If votes were protected by the ledger, it would take an unprecedented amount of computing power to decode and access them.

For business management and communication purposes, smart contracts also help streamline business operations. Many business operations are slowed down by the back-and-forth that arises from waiting for approvals and addressing certain internal or external issues. Using smart contracts on the blockchain network would help reduce this bottleneck by providing full transparency, accuracy and automation. Smart contracts can also reduce the risk of encountering lawsuits or settlements by minimizing the chance of discrepancies between parties.       

The healthcare industry is another sector that would greatly benefit from adopting blockchain technology. For instance, smart contracts could be used to store and encode personal and highly sensitive health records on the blockchain, making them accessible only to permitted parties. They could also provide a secure and confidential way to ensure that research is conducted in accordance with the law. Looking at general healthcare management, the blockchain ledger could enable general businesses to properly supervise medication, regulation compliance, testing results and supply management.

Smart contracts also show potential in more consumer-minded industries like the automotive sector or even electronics. As manufacturing enters the age of automation, smart contracts can be used to detect and secure robotic systems. In the burgeoning field of autonomous and self-driving cars, for instance, smart contracts could be used to accurately figure out if a car accident is the fault of the physical driver or a sensor.

Now that you have a better understanding of smart contracts and how they work, you might have a clearer picture of how these tools can be used for your business. While the applications for the blockchain and smart contracts are still evolving, you can rest assured that it will provide security and transparency to virtually any type of business solution.

 

Author Bio:

This article was written by Michael Kordvani:

Ever since he was a child, Michael was captivated by technology. When the opportunity arose to spend his life writing about it, Michael didn’t hesitate. He now spends his time exploring and writing about captivating new technologies to introduce to the people.
Michaels insatiable desire for new technologies leads him to pursue a computer science degree at Queens College. His work has been published on various technology blogs across the web.