Introduction
Smart contracts are seen to be slowly gaining acceptance and interest and in no time, we will see them being deployed in every industry. As the name suggests smart contracts are smarter than traditional contracts and a helpful innovation in today’s times. In this blog, we intend to educate our readers about what a smart contract is, its history, its impact on modern business industries, its pros and cons, and the future of the smart contract.
What is a Smart Contract?
A smart contract is a self-executing contract where the rules of agreement are translated into cryptographic codes and stored in a blockchain. In layman’s terms, it is a code that executes the task on successful completion or fulfillment of the pre-enlisted conditions.
But the real question is why should one even consider a smart contract? The answer is very simple, a smart contract eliminates dependency on a third party, which enables a contractor and contractee to establish business relations without the need for intermediaries.
Let’s take the case of delivery of a shipping container that uses IoT devices like GPS trackers to facilitate communication via the internet to ensure timely and transparent shipping. If a smart contract is executed here than once the items are delivered to the exact location, the payment will be automatically generated to the shipper. This will cut down hours of paperwork that would have been otherwise required in a traditional system. One of the most important qualities of smart contracts is that since the contracts reside in a blockchain, one cannot make any alterations once written.
This feature, however, has its pros and cons. On one side, it imparts transparency and automation, on the other side, the contract must be rewritten if any flaw is later located in the code, which sometimes makes the applications a bit expensive. But in a broader sense, Smart Contracts are automated, reliable, accurate, economical, and secure. They are economical due to the elimination of the middleman and his commission.
Smart Contract History and Creation
In 1994, Nick Szabo first proposed the concept of a smart contract. Szabo is a legal scholar and cryptographer known for laying the foundation for digital currency. In the past, due to a lack of digital facilities and distributed ledger platforms, there was a negligible amount of interest and activity witnessed in smart contracts.
In 2008, the bitcoin cryptocurrency was developed which made use of a blockchain system and ledger platforms to ensure timely transactions. This newfound blockchain system was then deployed to create smart contracts. Ethereum, Hyperledger, Tezos, and Corda are some of the many platforms that now allow for the use of smart contracts. With the increased use of bitcoin and blockchains, even smart contracts are gaining reverence and acceptance in society.
Why is the Smart Contract Important?
The innovation of this technology is taking the financial world by storm and has completely changed the business landscape, providing you with a suitable business solution aligned perfectly with the structure of your business. A smart contract operates on formality and associated costs with traditional methods, without any compromise on its legitimacy and integrity. Smart contracts are deployed in every field from new financial tools to logistics management to conflict-free gaming experiences and much more. The best part is, smart contracts are embedded in the blockchain, thus once initiated no changes or reversals can be made.
In traditional finance, exchanging currencies was a costly and tedious task. The process was error-prone and complicated. But with the introduction of smart contracts transactions became globally secure and accessible because of their innate quality to make processes transparent and immutable. Smart contracts accompanying a blockchain framework for the business platform are transforming companies, driving growth, and creating new business models.
Advantages of Smart Contracts
1. High Levels of Transparency
Since both parties are entitled to the same information at the same time, manipulation of data is next to nil. This in turn helps to avoid breaches in contracts and the agreement is thus implemented smoothly. It helps to build a relationship of trust and security between the parties of the contract as the data is available to them throughout their lifespan as they both have records of the same which can be retrieved and accessed at any time.
2. Cost Reduction
Smart contracts don’t require any intermediaries as they are automated. The nil participation of third parties cuts down the commission fee which would have otherwise been charged in exchange for ascertaining the terms of the contract and providing necessary confidence.
3. Autonomy
The parties to a contract can exercise autonomy and independence due to the non-intervention of the intermediaries while framing the contract. This leverages cost reduction and ensures improved speed of activity. Automated systems without a doubt are known to deliver error-free work, and accuracy and most importantly facilitate increased speed levels of the entire process due to negligible interaction with third parties.
4. Safe and Secure
Blockchain transaction records are very hard to hack because the codes are encrypted. Moreover, each record is connected to the previous as well as subsequent records on the ledger which makes hacking a very exasperating task, as the hacker will have to alter the entire chain of records to be able to successfully change a single record.
Disadvantages of Smart Contracts
Just like every coin has 2 sides, similarly, smart contracts exhibit a lot of opportunities but at the same time they submit to certain challenges. Smart contract integrity may get questioned in the following cases;
1. Dispute Resolving
In traditional contracts parties headed to court to resolve their disputes but the same is not possible in digital/smart contracts. Once a contract is executed there is no going back as one cannot change transactions, however, this does not snatch one’s right to remedy. The contract and dispute resolution for smart contracts is a very real and growing field.
2. Inability to Scale and Shared Networks
A smart contract only possesses a single blockchain with a single, shared network and thus it can only process a limited number of transactions in a second. Ethereum blockchain for example can only execute 15 transactions per second. Though this might appear to be enough, it is not.
Complicated programs, such as Instagram or Zomato, require hundreds or even thousands of processes per second to run effectively. It already costs a hefty sum to run these complex blockchain programs for an hour, and at this rate, it will only end up sucking away the hard-earned profits of the business which is not desirable.
Big IT firms like American Express, IBM, and Goldman Sachs have invested in blockchain projects along with numerous other companies. However, with increasing demand, a major scarcity of professionals is found in this field and that’s why we have introduced exhaustive blockchain courses to make you futureready.
The Future of Smart Contracts
Like any new technology, blockchain has evolved from an idea to a market buzzword, and now to a real solution with applications in real business environments. The worldwide Smart Contracts market size is estimated to reach USD 1460.3 million by 2028, from USD 315 million in 2021, at a (CAGR) of 24.2% from 2022-2028. As more and more aspects of our lives are getting automated – cars, grocery store checkouts, and delivery chains – they potentially inhibit qualities to make things run faster, cheaper, and safer. But just as drivers, grocery clerks, and delivery agents are slowly disappearing, with the advent of smart contracts legal contract specialists will soon be finding themselves on this soon-to-be displaced worker’s list and if they wish to survive then they will have to reinvent themselves.
A smart contract can make or mar a blockchain game. Even though smart contracts are advantageous and attractive, their global adoption will still take time. Hence, before introducing smart contracts, legal and regulatory issues of the technology must be ironed out and tailored to establish appropriate IT responsibility.
Conclusion
Smart contract blockchains made a significant jump in recent years in their development, return performance, and investment opportunities. They have overpowered Bitcoin from 2021 and provided smart contracts’ disruptive characteristics and future upgrades, we anticipate that investor interest will gradually and continually increase with the increasing number of dApps, developers, and active users being onboarded. The future of Smart contracts is bright and if businesses and software developers alike understand and utilize this opportunity at the right time, they will only find themselves climbing the ladders of success.
FAQs
1. Are smart contracts legally binding?
For a contract to be legally enforceable, it must comply with basic contract law requirements, i.e., there must be an offer, acceptance, and consideration. Thus, if smart contracts encompass all three areas without a doubt, they will be legally binding.
2. Which smart contract is the best?
Ethereum pioneered the adoption of the smart contract in 2015 and is considered the best smart contract platform to this date. It has been deployed in almost everything ranging from initial coin offerings (ICOs) to smart-contract programs.
3. What is the fastest smart contract platform?
Solana (Single Chain) is known to be the “fastest blockchain in the world,” Solana boasts sub-$0.01 transaction fees and 400-millisecond block times.
