Smart contracts have a profound potential to change the way we do business every day. In this article, we will discuss some of the key advantages of smart contracts compared to traditional contracts and also take a look at what the future holds for smart contracts in the digital world.
The first idea originated back in 1994 when Nick Szabo theorized the usage of the distributed ledger and smart contracts. You can read more on Nick Szabo and other pioneers of digital currencies in my previous blog.
We are not going deep into the technology of smart contracts here. I would rather introduce some of their key advantages and their possible future in the digital world.
Key advantages of smart contracts:
Transparent — smart contracts share the same values as blockchain: transparency allows them to be easily audited, fact-checked, and reviewed.
Precise, time-efficient, and trust-less — all three values go hand in hand; once the instructions of smart contracts are written and finalized, the execution is guaranteed by blockchain, allowing smart contracts to be executed on time, instantly, and at low costs.
Secure — the smart contract data is encrypted and stored safely in the blockchain.
Digital — unlike traditional contracts, with an inherent need for a third-party engagement to guarantee the execution of the instructions, smart contract are digital and can thus only involve the parties that are part of the contract.
What does the future hold for smart contracts?
I may be an idealist, but I see smart contracts— either the ones we currently know or in some other future form — as a breakthrough innovation. I share the same optimistic view of the blockchain.
The traditional paper contracts are outdated, unpractical, and insecure. Not to mention costly and inefficient. The majority of companies from the fields of insurance, supply chain, and real estate, or banks and other financial institutions still do business with pieces of paper. It’s easy to imagine, just how much the smart contract system could benefit such companies in terms of security, precision, speed, and efficiency, as well as avoiding the paper confusion (and pollution).
How about the consumers? When we go to the bank, we tend to always leave with a piece of paper in our hands. Nowadays, banks use digital signatures and store contracts online, yet their customers are still provided with pieces of paper. While it is nice to look at our diplomas and other certificates on our walls, we still get them only in a paper form, risking their loss or damage. How about mortgages, doctor’s prescriptions, employment contracts, utility bills, and similar everyday “contracts”? They could all be stored digitally and securely, providing us with a precise overview and history of all our transactions, agreements, and expenses. In these matters, I see the unlimited potential of smart contracts and how they can help companies and individuals alike.
Contracts are an integral part of every business. Making the contracts more secure, precise, and efficient means, in fact, making the whole business more secure, precise, and efficient.
This article is a part of our Blockchain 101 series. See all articles or jump to:
Blockchain 101 | Part 1: What the Heck Are Permissioned and Private Blockchains?
Blockchain 101 | Part 2: “FCD3 6880 ADD7 FB45?” or “What the Hell Are Hash Functions?”
Blockchain 101 | Part 3: What Makes Bitcoin Secure? Hint: Merkle 🌳
Blockchain 101 | Part 4: Biggest Threat for Blockchain: 51% Attack?
Blockchain 101 | Part 5: The Story Behind the Byzantine Consensus
Blockchain 101 | Part 6: Just How “Smart” Are Smart Contracts?
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