Smart Contracts: the definitive guide for beginners

That is the main difference between regular contracts and Smart Contracts. Let’s see it with an example. Think of it as a vending machine. Generally, for any extra services, such as lawyers or hospitals, you would have to pay and wait to receive the service or documents.

But it does not happen in this case. With this new technology, you just insert your Bitcoin in a vending machine and get the product instantly. The best part is that you will not only define the rules of the transaction, but you will also enforce them!

According to an Ethereum programmer, the asset or currency is transformed into a program. The program executes the code and evaluates based on the tasks whether this asset should go to the other person or back to its owner.

This saves a lot of time in the process, and everything related to the transaction is fair to both parties.

An example of Smart Contract

Let’s make it clear with an example.

Suppose Todd wants to buy Jamie a car. You can easily pay Jamie using the Blockchain network and through a cryptocurrency. Todd will receive a virtual receipt and this will be included in the Smart Contract.

After Jamie gives him the key to his car within the specified date, Todd will release the payment. If Jamie does not give you the car key, the network will request a refund. However, if Jamie gives you the key within the specified time, both the key and the payment will be held until a certain date.

Once all contract requirements are met, the key will be delivered to Todd and payment to Jamie.

The system works with the if-then clause, and no one can check it without alerting the other party. If someone tries to access the code, all parties linked to the contract will be alerted immediately.

Hundreds of people see the system, so you can be confident that it will be good for everyone who uses it. If Jamie gives him the key, he will receive payment, no doubt, and Todd will also receive the key.

Then, both parties win, and the contract is automatically cancelled after certain rules are met. The process is really simple.

You can use this amazing technology for anything, such as default contracts, credit compliance, financial services, insurance premiums, property law and many more.

 

How will Smart Contracts affect your life?

Let’s look at a situation to deal with first. Imagine you want to sell a house. The process is not that easy; you will have to deal with a lot of people, not to mention all the paperwork.

All this makes the sales process even more complicated. That’s why people turn to a real estate agent to take care of all those problems, and you can relax and sell without hassle.

However, real estate agents will take 7% of the sale, which can be a big problem for many people. The real estate agency will have methods to ensure that you will not be scammed.

Smart Contracts can be very useful in these situations. Technology would eliminate the need for the middleman (the real estate agent) and the trust issue. This way, you won’t have to fear for your money or the property itself.

After delivering the property, the buyer will release the money and you will be able to sell your house without paying any additional fees.

This is just one case; there are many more. They will facilitate any form of asset and money and make sure you get the desired product.

Isn’t this a pretty easy system? This new technology has the potential to change the world and is currently doing so.

 

What makes Smart Contracts so desirable?

You may have some questions about why you should use Smart Contracts or how they would help you. Here you will find all your answers. Smart Contracts use cases will surprise you with their innovative and digital applications.

• Interruption-free
  The most annoying part is when a third party or third party interrupts your decision or agreement. With Smart Contracts there will be no interruption by any third party. You alone will make all the decisions and do any transactions yourself.
  You do not have to wait for confirmation from any lawyer or broker. Therefore, the entire process will be completely free of manipulation.

• Security
  Nowadays computer attacks have become a huge problem. Everyone wants to keep their documents safe from these attacks. The Smart Contract will provide you with a website for your documents free from cyber-attacks.
  These websites are encrypted with the highest level of encryption, which makes them almost impossible to decrypt and crack. Therefore, it will be one of the safest places for your documents.

• Fast execution
  Processing all documents and paperwork manually usually takes some time. That is what manual processing entails. On the other hand, Smart Contracts with Blockchain do everything digitally.
  They process each task automatically with software codes and internet. This will save you a lot of time. You will complete the entire process in the blink of an eye. In addition, there will be no manual processing.

• Benefits
  When there is a broker or middleman, or any other third party, you have to pay extra. But with a Smart Contract, there will be no third party or middleman. This eliminates the large number of intermediaries. Therefore, you can save that money efficiently.
  Therefore, Blockchain will help you save money.

• No errors
  You know very well that when you fill out forms manually there are chances that some errors will be made. But, an automated Smart Contract will complete the entire process automatically, and there won’t be a single error.
  There will be a complete record with every detail of all terms and conditions. Therefore, processing will be error-free, faster and more economical.

 

Smart Contracts open up a new horizon of possibilities

The Smart Contract is best suited to those sectors where an automatic execution process is useful.

These sectors are healthcare, banking, real estate and insurance. In these sectors Smart Contracts with Blockchain will be better suited, and by adopting this technology, they will benefit greatly. They run the entire process automatically using algorithms, rules and intelligent coding.

In other sectors where services are offered, such as food, beverage and hospitality, Smart Contract may not be as useful.

 

Moving forward

Developers look forward to the use of Blockchain technology for Smart Contracts to advance the field. In that way, they want to merge commodity futures contracts with Blockchain technology.

Commodity futures contracts are a type of financial derivative. Customers and suppliers can use them to avoid price fluctuations that may occur in the future. It is exchanging them mainly through a few intermediaries such as Eurex or CME.

The activities of these entities are like those of brokers or intermediaries, and therefore their users have to pay high fees for using them.

Developers are very excited about merging the commodity contracts of the future with the Blockchain platform and the Smart Contract. In this way, they will be able to control and regulate price fluctuations more easily. Soon there will be a great revolution in the business world.

 

Smart Contracts applications

You’ll want to know what you can use Smart Contracts with Blockchain for. There are many scenarios where Smart Contracts applications are excellent. The Smart Contract has the traditional system of records and agreements.

Let’s take a look at the Smart Contract use cases.

 

• Records storage
  Smart Contract includes digitization of the Uniform Commercial Code form. Therefore, it can store records, release them and automatically renew them when you need them. In addition, if there is any need or requirement to permanently delete any record by law, you can also do this automatically.

• Trading activities
  Traditional financial trading activities always required a broker or intermediary. This made the whole process time-consuming and quite costly. The Smart Contract eliminates this intermediary part of the financial activities. They use letter of credit methods or the initiation of commercial payment transmission. Therefore, they are making the whole process of financial activities simpler, more efficient and less costly for buyers and also for suppliers.
  They are improving the liquidity of financial resources. A Smart Contract requires impeccable industry background as well as proper legal processes.

• Supply chain management
  One of the potential uses of Smart Contract is supply chain management. Smart Contracts with Blockchain keep all records of the entire process, from material collection to product delivery. They record every detail of the entire process involving all the people involved.
  The Smart Contract uses the sensors of the Internet of Things (IoT). You can track all product movements every step of the way, from manufacturer to supplier. It also maintains records on whether the final products are delivered to their respective buyers or not. It even has the history of any missed or delayed deliveries, as well as their exact destinations.
  In addition, each interested party will be able to verify if any of the parties involved do not comply with the terms and conditions of the contracts. The Smart Contract is making the entire supply chain transparent to all parties involved. Therefore, it is moving the industry’s supply chain forward and improving.

• Mortgage system
  Smart Contracts with Blockchain can be beneficial for another economic area such as mortgages. The mortgage process is not that easy. There is a lot of information about the owner and the mortgagee.
  At the time of formalizing any mortgage, there should be an estimate of debts, earnings, expenses, as well as other important information. All these things make the procedure complicated, costly and time-consuming.
  With Smart Contract technology, all the procedures to formalize a mortgage will be easier, cheaper and faster. This technology will take care of all processes automatically in detail. There will be no confusion, no problems, no extra charges and no complications with documents.
  Most importantly, all these procedures will be transparent to all members of the parties involved. This technology will connect the interested parties to complete the transaction by signing the agreement, which is completely digital and error-free. Both parties will know what they are signing.

• Real estate market
  Another application of Smart Contracts is the real estate market. Due to smart technology, the real estate business has become much easier and simpler. It is not necessary to have a face-to-face meeting to finalize an agreement. That’s because Blockchain technology is fully digitized. You will be able to complete the entire negotiation process digitally without any interruption or error.
  It only requires the appropriate information about the property, its owner and the buyer, as well as the digital signature of the interested parties. The Smart Contract will verify if the information is real. It will review the information using identity tracking protocols.
  Finally, you will receive payment and transfer the property to the new owner.

• Employment contracts
  Both the employee and the employers expect something from each other. Some may meet expectations and some may not. But, neither of them knows how long that working relationship will last. Different companies have different rules, terms and conditions. If the employee does not know these terms, how can he or she comply with them?
  You get the solution with Smart Contracts. This technology will keep all the record of the company’s terms and conditions that employees must comply with. In addition, there will be records of all employee information and salaries.
  Everything will be transparent for each person. Therefore, employees will be able to know their positions and achievements. And they will be able to meet their objective and maintain a good relationship with their employers, as well as with each other. If there are any changes to the terms and conditions, everyone will be able to see them.

• Copyright protection
  Smart Contracts with Blockchain can secure copyright content. When a group works together, there can be some confusion about responsibilities and rights over that work. If there is a complete record of all responsibilities and rights together with the respective persons, it will be easy for the team members to cooperate with each other.
  Smart Contract technology can make it easier for you to work as a team. It will maintain all traces of collaboration using a decentralized Blockchain system. There will be no more doubts about entitlement and liability.

• Insurance Claims
  We all know very well that the process for an insurance claim is very time consuming. It is often very complicated and irritating, both for customers and insurance companies. It’s not your fault. The claim requires a lot of paperwork for its complete handling. This is a great example of the possibilities of Smart Contracts.
  Smart Contracts with Blockchain can simplify and modify the entire claims process with automation technology. It recognizes any condition and automatically carries out the claim. Therefore, it will manage the rest of the process without making any mistakes.

• Electoral processes
  Most governments rely on the voting system, where manual vote counting processes are not 100% reliable. Most of the voting process is lengthy and inappropriate.
  A Smart Contract has a general ledger or ledger of records that protects the voting system. This system provides highly protected encryption and increased computing power. It is almost impossible to decode and crack the whole system. In addition, it will also require a great deal of computing power.
  This process will be completely accurate and faster than the manual voting system.

• Healthcare Services
  Healthcare facilities can also use Smart Contract technology as their system of record. In such places, a great deal of information is required for daily management and security. Blockchain technology will be able to store a large number of records.
  All records will be coded. Only a private key can give access to the records, and only the relevant persons will obtain that private key. The general ledger can also keep safe all research work, handle test reports, medications and other supplies for healthcare management.

• Internet of Things (IoT) Network
  When Smart Contracts with Blockchain work together with the IoT, they become more robust, more efficient and meaningful. Together they achieve the greatest potential for companies. IoT, the Internet of Things, makes Smart Contract definitely a more powerful technology.
  Together they create a powerful network using hardware and software, and make its application possible in real life. They create the perfect technology from a perfect combination.

 

How do Smart Contracts work?

It is very simple. Like a vending machine, it only requires an amount of one cryptocurrency. All you have to do is include it in the contract along with the information you want to keep as a record. You must also define the rules, terms and conditions before any contract is ready.

Interdependence

A Smart Contract can operate either individually or together with a group of Smart Contracts. The individual will operate independently. Users can share a group of Smart Contracts with each other, making them dependent on each other to complete any task.

Some companies are already bundling various Smart Contracts with Blockchain. They work automatically depending on each other.

Smart Contracts objects

It includes three individual parts, or you can also call them objects.

The first is the digital signatures of the parties involved, whether or not they are interested in reaching an agreement.

The agreement requires a theme. It is the second object. All persons involved should have access to the agreement and all related information. There should be no hidden conditions or information about the contract.

Finally, there must be some meaningful terms and conditions described mathematically. Appropriate programming languages will establish these terms in the Smart Contract. Once an agreement is ready, each interested party has to accept and follow its rules and regulations.

Environment

A Smart Contract requires a perfect configuration to function properly. At the beginning, users must have their unique cryptography code to enable and allow all transaction procedures, which must be suitable for the environment.

After that, there must be an open, reliable, automated and decentralized database. Smart Contracts are an example of an excellent environment for technology.

Most importantly, all advanced contract data must be from a 100% reliable source. To make sure of that, you can use different programs and advanced protocols such as HTTPS and SSL security certificates.

 

What are the advantages of Smart Contracts?

Smart Contracts are replacing the traditional process thanks to their advantages. In fact, they already provide many benefits. They are sure to improve further and increase in the future. Let’s take a look at some of the benefits of the Smart Contract.

• Full transparency
  Smart Contracts are completely transparent to all members. Any person involved will have access to view all terms and conditions of the agreements. If anyone wants any changes, they should decide before the contracts are ready. Once the contract is prepared, there will be no discussion about it.

• No error in communication
  Now you know that Smart Contracts are fully automatic and have all the information in detail. Therefore, it means that there is no possibility of a miscommunication or misunderstanding. Every communication entering the network will be 100% clear and automatic. There will be no communication gap.

• Efficient performance
  The Smart Contract can assure you of an efficient process. The combination of accuracy, speed and the automated function will complete the entire contract process efficiently without any failure or interruption from an intermediary. It will process a large number of transactions with high efficiency.

• Paperless
  Smart Contracts contribute to the environment by avoiding paperwork. They use the virtual world for all their processing and are therefore completely eliminating the use of paper. It is a significant contribution to the environment and also to the world. They are improving both the real world and the business world.

• 
  Backup
  
  There is a chance that the bank may lose your documents or accounts. The Smart Contract always has a backup. There will be many duplicates of your documents on the blockchain. Therefore, there will be no possibility of losing any of them.
  Smart Contracts permanently record all your essential documents with explicit details. Whenever you need information, you can easily find it in your storage. The most important part is that you can recover any information if there is any data loss.

• Reliable
  You can’t be sure that no one will ever lose your documents, can you? But you can rely on a Smart Contract to never lose your records, as they will encrypt them in a shared ledger.
  Smart Contracts are completely reliable. They run all the work automatically using your network. Therefore, there will be no risk of loss, manipulation or error with your documents. A totally safe execution of each process will be carried out.

• Guaranteed results
  Smart Contracts allow their members to create agreements on their own; but they have to do this by following some rules that will make the agreements more meaningful. There will be no intervention of external courts. You just have to follow all the rules required by the contract.

 

Disadvantages of Smart Contracts

There is nothing in the world that does not have any difficulties or weaknesses. The Smart Contract also has certain weaknesses. Let’s see what they could be.

• Confidentiality
  Being transparent is good, but not always. Sometimes there are some crucial issues that require privacy. Some Smart Contracts such as Hyperledger provide their users with a private Smart Contract. But there are Smart Contracts like Ethereum that do not offer that privacy to their users.

• Error
  The information in Smart Contractsis encrypted, and decoding it is quite a difficult task. But what if the programmers make some mistakes in the code and your users encounter some loopholes? It will be a matter of precision.

• Unreliable information
  It is certain that there will be error-free processing due to data storage. But, at the beginning, there is a small chance of storing incorrect information. In that case, the whole process will fail because of that false information.

• Rogue Contracts
  Smart Contracts with Blockchain are executed automatically. It is amazing and useful. But, if a hacker hacked the system, he could perform any illegal activity, which would also be executed automatically.

 

Six examples of Smart Contracts based on companies with a head start

As we speak Smart Contracts are changing the world. After their introduction, they have begun to spread their roots in the industry. Since Ethereum was the first to achieve this, most companies now use its platform to create a contract.

Here are these examples of Smart Contracts, which are already using new technology to lead in a competitive world. Let’s see what they are.

 

Slock.It and Share&Charge

Slock.it is changing the rules of the world and the economy. All thanks to Smart Contracts. Many companies now use Slock.it, to ensure that their payments, actions and rentals are automated.

Slock.it showed the world with its recent Share&Charge collaboration how useful Smart Contracts can be. Now, with the help of this new technology, the rental payment process for electric vehicle charging stations is automated.

Slock.it is also developing another network called Universal Sharing Network. It is an open source platform where developers can implement Blockchain applications. Once completed, you will be able to add additional third party objects, such as products, services, etc.

 

Etherparty

This new company is known as ‘The Creator of Smart Contracts’. Why? They provide a platform to help you build your Smart Contracts. They have already launched a contract wizard with more than 500 people registered in the project.

Users will get a pre-built beta template on their platforms to help them build their own contracts.

But what if you don’t know how to code? Don’t worry, with Etherparty you won’t have to. They have pre-designed templates of different Smart Contracts, such as real estate agreements, supply chain management, escrow contracts, token creation, contractor agreements and many more.

The process is quick and easy, and people would adapt fairly quickly.

 

Fizzy AXA

AXA is a French insurance company that uses the Smart Contract in its system. Actually, the idea is quite simple. We know that a delayed flight can put a damper on a vacation or business trip, but dealing with compensation is much worse.

Receiving compensation for delayed flights is difficult and, more importantly, sometimes our insurance does not cover it. The reason depends on the cause of the delay, and recovering the money can be a headache.

With the help of Fizzy you will be able to get compensation without any hassle. If your flight arrives more than two hours late and you have uploaded your airline information to the app, you will receive a notification.

The notification will inform you of the options to be indemnified, and after you have chosen one, the money will go directly to your account.

In this case the use of Smart Contracts eliminates any airline-related losses and compensates for losses even outside of insurance coverage. The insurance simply works on a trigger, and for Fizzy AXA, the trigger is a flight delay of more than two hours.

At this time, this product is currently only available in the USA. and Paris. They were planning to expand it by the end of 2018. You will have to pay a subscription fee for the time being.

 

Propy

As we mentioned earlier, one of the common use cases for Smart Contracts is the real estate business. To make this a reality, the company Propy is beginning to integrate Smart Contracts into its system.

The first transaction took place in September 2017, when a person bought an apartment for $60,000 in Ukraine.

This type of cross-border agreement can unlock the real potential of the real estate industry through Smart Contracts.

This is one of the best examples of Smart Contracts. A user will be able to search for properties and initiate offers. After going through specific processes, other security options are taken to ensure fair play.

A potential buyer can reserve a property with some money and then pay once the paperwork is done. If for any reason the seller does not want to sell the property, the buyer will be refunded.

Every signature and other documents are shared through the application, and it won’t matter where you live.

 

PolySwarm

PolySwarm is a unique company, working with threat intelligence in the market. Thanks to the Smart Contract blockchain it will now work better than ever. Any company or representative can post their challenge on the network along with a specific reward.

The person who does it correctly is rewarded with their Nectar token. After evaluating their actions, the funds are automatically released to the experts.

This process allows an expert to get rid of cyber security loopholes and ensures better protection for everyone.

 

Populous

Invoice financing is another excellent way for business owners to get money from unpaid invoices. The purchasers of the invoice will pay the money in advance and will be responsible for the invoice. Once the debtor has enough money to pay the bill, he receives the remaining money.

Populous is taking this process to another level. They are currently only working locally, but are also slowly occupying global markets. Getting rid of the middleman speeds up the process.

There is no human error in duplicating the invoice or other form of calculation errors. With the help of Populous after uploading your invoice to the network and defining specific terms, transactions are automatically performed with the help of Smart Contracts with Blockchain.

 

The future of contracts

Recently, an incredibly excellent technology has appeared on the market, and it has replaced the old traditional process for managing contracts and agreements. This is the new Blockchain technology , along with its new Smart Contracts. Welcome to the world of Blockchain technology and Smart Contracts.

Initially, it was created primarily to hold the Bitcoin cryptocurrency. But, soon after, developers realize the potential of the technology to replace the traditional record storage system. There is also a cryptocurrency called Ethereum, and they also considered Ethereum as the future for contract technology with its unique Blockchain platform.

Blockchain is a huge digital ledger of transactions. This ledger can keep a record of anything important with explicit details. In addition, it can be used to keep records of financial accounts, property activities, claims, birth and death certificates, medical procedures and other important things that the computer code can record.

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