Ever since the inception of blockchain technology, it has revolutionised the world of finance, through many implementations, the most prominent of them being smart contracts.
With opportunities for streamlining any kind of financial transaction, these self-executing immutable contracts have established a new horizon in financial technology or fintech.
If you would like to learn more about how smart contracts work, you can consider taking up financial technology classes that specialise on Blockchain and smart contracts.
How Do Smart Contracts Work?
The term “smart contracts” was first developed by Nick Szabo in 1994 to materialise the concept of a contractual agreement where the involvement of any third party or even the government could be eliminated. A smart contract comprises a code written on a blockchain network based on conditional statements such as “If…then” or “When…then”.
Such conditional statements work as terms and conditions of the contract which the parties have to mutually agree upon. It is entirely up to the involved parties to determine how the data of the transaction will get represented, as well as to set a mechanism in place in the contract for resolving disputes.
Necessity of Smart Contracts
As opposed to contracts formulated on paper, which are quite cumbersome, smart contracts simplify business and increase efficiency. Their immense potential in revolutionising the sector of online businesses can be made possible by smart contracts because they can circumvent the complications of the traditional law for contracts.
Since smart contracts are based on blockchain technology, they are immune to any unwarranted alterations. The impregnable ledgers ensure that the number of parties involved in signing the contract is minimum, and that they have constant access to their assets. Smart Contracts are also time efficient considering that their real-time execution reflects the changes for all the stakeholders simultaneously.
Smart Contracts: Applications
Irrespective of the financial situation, smart contracts can help establish a sense of trust between two parties involved in a transaction. Multiple smart contracts are combined together to create an ecosystem in blockchain networks where many decentralised apps are designed for gaming, trading and exchanging of digital assets, and media. Here are some of the real-life situations where smart contracts are beneficial, and help shape emerging technology:
Gaming and NFT
Non-fungible tokens, or NFTs as we know them, are digital objects representing some or other aspect of the game in blockchain networks. The unique layout and the rarity of these tokens, along with their indivisible nature make them highly sought-after assets in the gaming world.
The transactions of NFTs in blockchain-oriented games are based on smart contracts, whereby you can store items purchased within the game, exchange them for a fee with other players, and even shift the NFTs to another gaming ecosystem, and the immutability of the NFT expands its value beyond the game it originated in.
Smart contracts can help further the cause of Artificial Intelligence and machine learning and vice versa. Combining the immutable and decentralised protection features of smart contracts with the data-processing feature of AI, programmers can create smart contracts enabled by AI. Using the technology of smart contracts, AI can independently execute its rules and regulations as well as ensure that the data meant for processing is stored in a secure environment
To ensure that sharing of patient information happens in a secure and safe manner, healthcare industries are increasingly adopting smart contracts into their system. For instance, automated payments of healthcare charges via smart contracts can help eliminate the possibility of overcharging.
Smart contracts are increasingly replacing conventional legal agreements as a more viable option. It eliminates the necessity of having intermediaries like lawyers and brokers, paying whom can lead to hefty expenses, through automation. Drafting of documents and their verifications, or sanctioning mortgages can now be done via a code segment, with better data security.
Since smart contracts are known for transparent transactions without the interference of multiple hierarchical organisations, they can be particularly useful in complex chains of import and export. Using Internet of Things (IoT), information can be sent to the blockchain network, prompting the coded execution of events in the smart contract.
Protection of intellectual property rights
Smart contracts are also beneficial in protecting the copyright information of the creator or owner of a product. Upon purchase of a product, the code mentioning disbursement of royalties gets executed, thus outlining clarity regarding ownership and payment.
Advantages of Using Smart Contracts
Since smart contracts function on the blockchain network, the records or documents of the executed transaction would be immutable and always available. Any chance of ambiguity that might be found in paperwork gets eliminated in smart contracts.
Contrary to conventional contracts being mediated and supervised by third-party agencies and individuals, smart contracts get done by the blockchain network, involving only two parties who would be signing the agreement.
Automation and efficiency
Code-operated contracts mean that the terms and conditions laid out in the said code would be automatically executed, then validating the smart contract. The entire process happens at a much higher speed than manual execution.
Since third-party contacts or intermediaries are not required when executing a smart contract, the involved parties can reduce their expenses to a significant extent. This feature of smart contracts is especially beneficial in real estate and money-lending businesses.
Since smart contracts are codes compiled by human programmers, the possibility of error cannot be completely minimised. In that case, Artificial Intelligence can help eliminate such chances of errors.
Furthermore, the amount of transparency involved in formulating smart contracts, especially in maintaining documentation is making them increasingly popular in the fintech industry. The problem of data breaches that made consumers resist digital transactions is removed by the data security mechanism of smart contracts.
If you are planning to have a career in fintech and smart contracts, then the fintech certification course offered by Imarticus Learning will be really beneficial for you and open up dynamic employment prospects.