Blockchains run code. Transferring tokens, checking accounts, and minting the cryptocurrency are all examples of simple functions embedded in the blockchain.
But this is just the tip of the iceberg. Instead of simulating basic operations on the currency, you can extend it to a point where the code is actually an autonomous, self-sufficient complex program sewn into the blockchain structure.
Such are called Smart Contracts.
Why would you be interested in Smart Contracts?
Smart Contracts allow for the triggering of specific functions when conditions are met.
The whole magic lies in the fact that you do not need a third party to execute the contract – it executes itself, triggering a debt, a payment request, or a derivative at a predefined condition or benchmark.
It allows you to drastically reduce intermediary costs.
Example of a Smart Contract
To better understand this, let’s take a look at an example of a Smart Contract.
The contract can do all that, cutting the cost of the middle-man.
Of course, that’s just basic logic. But what if Alexander doesn’t have a credit rating? How to check it? Shall we review the history of the account? And what if he won’t pay? Should the contract notify someone and try again?
You can create a complex Smart Contract program that will do that.
But here comes the tricky part: once it is up and running in the mainnet, it stays there for good. The contract is permanent and immutable.
This doesn’t mean that you cannot influence it in any way – but you can do it only in a way that was provided at launch. You cannot change the code itself. Well… that’s actually the idea of a contract, isn’t it?
Outsourcing blockchain development can be tricky. Check our recent post with insights on this process:
How can you use Smart Contract in business?
The above mentioned financial use is just a tiny fraction of the possibilities. Smart Contracts are usually perceived as a good medium for:
The Insurance industry
Usually, executing insurance policy is extremely slow and expensive. Blockchain could solve this by automating the process.
But to work, Smart Contracts require objective input and parameters. You could use, for example, data from the meteorological institute as a signal for the occurence of catastrophic events, the data from autonomous cars as a trigger for car malfunction, and so on.
It saves a lot of time and administrative work. Everyone involved knows from the start exactly how it works, and what the triggers and results are.
The processes surrounding the Real Estate industry are complicated and expensive.
Blockchain can simplify it, connecting each side directly and avoiding additional transaction costs.
Smart Contracts in ecommerce can allow for quick payments and make conditional payments depending on product delivery.
The internet of things is one of the best examples – it allows machines to make transactions – a fridge can refill itself, and the car can pay to charge its own battery.
In one of the most widely discussed scenarios, Blockchain can create a secure environment for voters which will be fraud resistant.
It saves manual work in counting votes and saves you the time spent visiting the polls.