We cannot start without first understanding what a smart contract is. Although there is already a guide on this blog that fully covers the subject, it never hurts to do a review to get into the situation and understand the full potential of this technology.
Smart contracts use blockchain technology to facilitate the exchange of money, property, information, or whatever people see fit to use one of them.
One of the great advantages of blockchain technology is mainly its decentralized nature, which, thanks to point-to-point transactions, means that smart contracts do not require an intermediary for their operation. When we stop to think about how traditional contracts operate, we immediately notice the need for a person or institution, such as notaries or banks. With smart contracts we can not only bypass these people, but also save ourselves a great deal of cost and time.
The advantages that we get when using these contracts are really very interesting.
- Autonomy: The decentralized nature of the blockchain means that they do not require a third party to be fulfilled.
- More secure: Blockchain technology enables the creation of a distributed ledger that is immutable. For that, it uses cryptography that works as a point-to-point transaction system.
- Fast: Without the need for a third party, these are much faster.
- Greater precision: When humans intervene, common contracts are prone to failure. The smart ones are designed to avoid them.
- Cost savings: Automated processes reduce costs.
- Trust: An unalterable blockchain means that transactions cannot be changed.
- Backup: When we store something on our disk or on a flash drive, we run the risk of it failing and losing our information. Smart contracts are found on a chain of blocks that have thousands of nodes. This offers us a large number of backups.
Financial trading can greatly benefit from smart contracts. For example, Santander InnoVentures, a Banco Santander fund, has said it believes blockchain technology can save more than $20 billion per year from 2022.
A large part of these savings is due to smart contracts that automate currently labor-intensive approval workflows and bank clearing calculations. This automation will help reduce working hours, but it will also reduce errors considerably and the time it takes for calculations.
Virtually any type of industry in the world can make use of smart contracts to help improve the speed and security of their registrations. In particular, we can talk about a particular industry, that of health.
Today, the health care industry has computer systems with millions of patient medical records. Despite the large amounts of money that have been used to secure this information, they are still very vulnerable to attacks when compared to a blockchain-based system.
This technology can help ensure that databases with personal records are securely encrypted and protected from the gaze of an outsider. Another advantage is that it allows the use of private keys that only allow certain people to have access to them.
If we want to go beyond just registration in this sector, we can see how some smart contract use cases cover the issuance of prescriptions, the storage of receipts, inventory management, storage of medical exam results, etc.
Smart contracts have huge potential when it comes to the real estate market. In principle, it can be used to register property. Due to the advantages we saw earlier, speed and efficiency, these can be a better alternative than existing systems. Which means they can be used to record ownership of all sorts of things, from buildings to land to smartphones to watches.
In the particular housing market, smart contracts eliminate the need for expensive services such as those provided by lawyers and real estate agents. This implies that for the first time the seller and the buyer will be able to carry out the transaction without the need for a third party.
The real estate market can also benefit from mortgages that are cheaper, safer and faster with smart contracts. They will not only allow buyers to acquire a property quickly, but also help make the process much easier.
Mortgages with smart contracts will allow both parties to digitize the agreement before proceeding with the payment. Once made, the contract will automatically update the property details. Since the contract to exchange property for money requires the keys of all participants, this will make the process more secure and reduce fraud.
The insurance industry worldwide spends millions of dollars each year to process claims, while many of them lose money due to fraudulent claims.
Not only do smart contracts make it possible to issue the insurance policy, but also help improve the claim process in many ways. You can check for errors and determine the payment amount according to established criteria, which takes into account the type of policy that the person or organization has purchased. This reduces time, errors and lowers costs.
In the distant future, smart contracts may be used with technology called the Internet of Things, allowing vehicles to automatically file a claim after an accident occurs. Information such as driver’s license, driving records, accident reports and policy details can be processed immediately allowing unprecedented speed in this sector to the benefit of both parties.
Within the health sector, medical research is another industry that can benefit from the advantages of smart contracts as does care. The first of these is the handling of sensitive information such as patient records, which can be transferred between departments and research centers through the blockchain.
Many participants in medical studies have sensitive conditions that they prefer to keep private, so a system like this is essential.
On the other hand, medical study centers have a large amount of information such as test results or new drug formulas that they also want to keep safe. This can be kept safe when using smart contracts, in the event that they need to disclose it to a third party for whatever reason.
We have already discussed the advantages of a blockchain voting system . And it is that despite the fact that currently the countries that have adopted digital solutions millions of dollars for the elective process, these are victims of ill-intentioned people who use creativity to manipulate the results.
For that, smart contracts can be an efficient solution to the problem. They can be used to validate the identities of voters and record their votes. Because the blockchain is very difficult to modify, it serves as a great defense against attempts to tamper with the records.
Smart contracts can be used for a wide range of peer-to-peer transactions. For this reason, projects such as Ethereum have been created . People can use these platforms to create and run smart contracts.
These remain active until certain conditions are met, which were established by their participants. Once the contract has seen all of them complete, it continues its execution to complete the deal. The most common is, for example, the transfer of money, but it could be anything else.
Until now, it has been used mainly for the launch of ICOs and the sale of products through the internet. But the possibilities are practically limitless. They can be used to replace any type of situation in which money is required today, such as hiring a third party.
Another interesting use is to keep the blockchain updated with the production stages of a product through smart contracts. Two parties can sign a contract where upon reaching certain project milestones these are registered by the project itself. For example, it can be used to release funds as certain parts of development are completed.
An important quality of the blockchain is that it allows information to be securely recorded and its origin proven. A company that has invested a large amount of money developing a project obviously does not want this information to be stolen. If it happens, the current path is to go to justice and wait for the slow times of this. When it comes to intellectual property, it only takes a look at the blockchain to figure out the problem.
This will not only allow large companies to benefit from the technology, but also small startups that do not have enough money to defend themselves through legal process. With smart contracts you can create a fairly simple and inexpensive kicking system.
The supply chain is an industry that can greatly benefit from the technologies we are talking about here. Internet of Things devices can be supplemented by smart contracts and produce product information at every stage of manufacturing. With this, the loss of inventory can be practically eliminated, since it is only necessary to search for the lost product to the exact point where it disappeared.
On the other hand, in large product warehouses, smart contracts can help managers check inventory levels in real time and make the entire supply chain more efficient. With this data, stock levels can be adjusted and new work practices developed to improve delivery times.
If you operate with different locations and companies, smart contracts can do all of the above along with automatic order initiation and payment of received orders. This information helps the seasonality of the industry and adapt the amount of stock that is maintained in different parts of the year.
After reading all this, you may consider smart contracts to be the most interesting of all this new revolution involving cryptocurrencies and blockchain technology. While the eye of the news has been on Bitcoin and its exponential growth in price in recent years, other important aspects like this have been left out. While cryptocurrencies are a big step forward in a freer society without the control of governments, smart contracts can take this matter to a whole other level. That is why it is interesting to follow Ethereum projects or another platform that allows the development of dapps on it, since they allow us to imagine what the world of tomorrow will be like