In today’s technological world, the term “smart contract” is becoming increasingly popular. It refers to the deployment of practically any program or decentralized application (DApp) on the blockchain.

Smart Contracts play an important part in making transactions more safe and secure, as well as allowing them to run in an ordered manner. Additionally, it improves accessibility for other elements, including programmes running on different platforms. These programs are more than just the’self-executed contract.’

But what exactly are smart contracts? And what about its prospects?

Let’s have a look at smart contracts and the future of smart contracts in this article.

What are Smart Contracts?

Smart contracts are computer programs or protocols that automate transactions that are kept on a blockchain and executed in response to certain criteria being met. In other words, smart contracts automate the execution of agreements so that all players can know the outcome as quickly as feasible, without the need for a middleman or a time delay.

• Smart contracts are self-executing contracts in which the buyer-seller agreement is written directly into lines of code.
• Smart contracts, according to Nick Szabo, an American computer scientist who invented a virtual currency called “Bit Gold” in 1998, are computerized transaction protocols that carry out contract terms.
• It makes transactions traceable, transparent, and irrevocable.

Smart Contract: Benefits & Drawbacks

Although smart contract is a crucial enabler or disabler of a blockchain environment, it has both benefits and drawbacks that you should know.

Benefits of a Smart Contract

• One of the most notable advantages of smart contracts is that they reduce the possibility of third-party manipulation by eliminating the need for a broker or other intermediary to ratify the deal.
• Smart contracts on blockchains are encrypted, and encryption prevents all papers from being hacked; in order to modify a single record, hackers would have to interfere with the entire chain. (Isn’t it difficult to crack?)
• Because there are no intermediaries, the smart contract mechanism saves hours of time in numerous commercial procedures by reducing time delays and expenses.
• Smart contracts reduce errors caused by the manual completion of many forms.

Drawbacks of Smart Contract

• Smart Contracts’ irreversibility is a benefit, but it may also be a curse. If there is an issue in the code’s core structure, changing it can be both time-consuming and expensive.
• If the smart contract’s loopholes are not noticed by either side, they can be used unethically to benefit the other party.
• Although smart contracts attempt to eliminate third-party involvement, this is unachievable. In conventional contracts, third parties play a different role than in typical contracts.
• Because contracts require terminologies that aren’t always understood, smart contracts can’t always handle unclear terms and conditions.

How do smart contracts work?

Smart contracts work by executing simple “if/when…then…” sentences that are contained in blockchain code. When certain conditions are satisfied and validated, a network of computers takes action.

These tasks may involve transferring funds to the appropriate parties, registering a vehicle, sending alerts, or issuing a ticket. The blockchain is updated once the transaction is finished. As a result, the transaction cannot be changed, and the outcomes are only visible to parties to whom permission has been granted.

A smart contract can include as many parameters as needed to ensure parties that the task will be completed appropriately. To create the conditions, participants must first determine how transactions and associated data are represented on the blockchain, then agree on the “if/when…then…” rules that govern those transactions, explore all plausible exceptions, and design a framework for resolving disputes.

A developer can then build the smart contract; however, companies that use blockchain for business are increasingly giving templates, web interfaces, and other online tools to help with smart contract construction.

Applications of Smart Contracts

Smart contracts have a vast number of applications and thus successful use cases due to the underlying security and reliability. Some of its uses include:

System of Democratic Voting

Smart contracts improve vote security by making it less vulnerable to tampering. Smart contract votes are ledger-protected, making them impossible to read or retrieve.

Furthermore, smart contracts have the potential to enhance voter turnout, which has historically been low. In addition, when voting is transferred online using smart contracts, it might increase the number of participants in a voting system.

A blockchain-based voting system has already been utilized in the United States, Russia, Japan, and Sierra Leone. While other countries, such as India, South Korea, and Thailand, are working on a similar project at the point of contact level.

Healthcare

In healthcare, the pandemic has demonstrated how rapidly healthcare may fall, even in the most advanced countries. However, with blockchain, there is still reason to be optimistic!

Blockchain can easily store patients’ encoded health records with a private key. These encoded records will only be accessible to specific individuals due to security.

This will also make insurance providers’ and medicine supply management’s jobs easier

‘Doctors Without Borders,’ for example, employed this technology for medical recording. MDS, another Medical Service firm, used smart contracts to verify and check the legitimacy of Covid-19 test findings.

Supply Chain

Isn’t the paper-based method already obsolete? They have long been passed via numerous approval channels, putting the logistics network at risk.

By providing affected parties with safe digital versions, blockchain can minimize the possibility of fraud and loss. Smart contracts can also be used to manage goods, as well as automate payments and tasks.

For example, OpsChain Supply Chain Manager was recently created on a Layer 2 Ethereum blockchain in order to’smart’-ify the tracking process.

Financial Services

Smart contracts have revolutionized traditional financial services. The insurance claim is one of the best use-cases. If everything checks out, the digital contract verifies errors, forwards them, and then sends payments to the user.

Smart contracts include bookkeeping applications, which eliminates the possibility of any violation. They also allow shareholders to participate in open decision-making.

JP Morgan, Wells Fargo, and HSBC are among the major financial service firms that use smart contracts.

Scientific Research

To prevent the “silo” effect, real-time communication about research is crucial between institutions. More and more uses of “smart contracts” are being made for confidential information to safeguard patent and other intellectual property rights, as well as for automatic grant cash distribution.

Smart contract-based solutions are being investigated by companies like ARTiFACTS, Pluto, Orvium, and ScienceMatters-EUREKA to support research data provenance and workflows.

Digital Artworks

NFTs are one of the most popular uses for smart contracts, according to digital artwork. A smart contract that determines ownership and controls the transferability of NFTs is used to create them. NFTs are created by running code stored in smart contracts that adhere to various standards, such as ERC-721. Further additions of this code are made to the blockchain used to administer NFTs.

Future of Smart Contracts

Smart contract’s potential

The world is gradually becoming a science fiction drama! Smart contracts will very soon become much more commonplace as blockchain technology continues to acquire acceptance and trust.

To begin with, Smart contracts are also starting to exist in various fields. For instance, it can be very important for the future of customer service.

The establishment of a system with no central authority is disturbing for some of us, despite its possibly disruptive effects. Especially now that Blockchain-based technology still lacks data localization and border control.

But can non-monetary commitments be enforced via smart contracts? These can be more challenging to organize, so we’ll see more and more contracts with a financial element.

Remaining Challenges

There are two main issues that need to be resolved before smart contracts are used more frequently.

First, all the required legalese needs to be converted into computer code before a contract can be uploaded to the blockchain. Both lawyers and programmers are not normally one another. For the parties to be sure that the code within the smart contract accurately reflects the legal intent, this calls for a certain amount of trust and competence.

Second, a smart contract built on a blockchain is irrevocable. The decentralized nature of the blockchain typically has positive effects. However, it also implies that there isn’t a centralized figure or arbitrator who can intervene if one side feels wronged or even duped.

Over time, the problems will be solved. Regarding the first point, when more and more smart contracts are created, they will act as models for similar contracts. Additionally, a new area of expertise that bridges the gap between conventional and coded legal drafting will start to emerge for increasingly complicated legal situations.

The legal profession will undoubtedly try to intervene in order to provide a legal remedy in some way regarding the fraud issue. However, it is more likely that the IT industry would create a decentralized system to decide these disputes.

Automated vehicles, trucks, grocery checkout lanes, and other parts of our lives have the potential to make operations more efficient, affordable, and secure. But you can now add certain legal contract specialists to the list of soon-to-be-displaced individuals who will need to reinvent themselves in the future, alongside truck drivers and grocery checkers.

Hence, even if smart contracts have a promising future, many challenges remain.

Final thoughts,

Blockchain is the underlying technology that has made smart contacts possible to expand.

Despite having many advantages and positive effects, blockchain technology and smart contracts are still in their infancy, and it will take some time before they are widely adopted.