What are Smart Contracts in Blockchain, and how does it work?
Smart contracts are programs recorded on a blockchain and run when specific criteria are satisfied. Most of the time, they are used to automating the process of initiating an agreement so that everyone involved can know immediately what will happen without waiting for an intermediary or losing time. They can also set up a workflow automatically when certain conditions are met.
What is the role of smart contracts in blockchain?
A smart contract’s objective on a #blockchain makes it easy to do business and trade between anonymous and identified participants, sometimes without needing an intermediary. A #smartcontract reduces the formality and costs associated with traditional techniques while maintaining authenticity and legitimacy.
How Does Smart Contract Work?
Smart contracts follow simple “if/when/then” statements written in code on a #blockchain. When certain conditions are met and checked, the actions are carried out by a network of computers. Some of these activities could be giving money to the right people, registering a car, sending a notice, or giving out a ticket. When the transaction is done, the blockchain is then changed. That means no one can change the #transaction, and only people who have permission to see the results can see them.
In a smart contract, there can be as many rules as are needed to make everyone feel confident that the job will be done well. To set the rules, the participants must decide how transactions and their data are shown on the blockchain. They must also agree on the “if/when/then…” rules that govern transactions, look into all possible exceptions, and devise a way to settle disagreements.
Then, a developer can program the smart contract. However, companies that use blockchain for #business are increasingly providing templates, web interfaces, and other online tools to make it easier to set up smart contracts.
Types of Smart Contracts?
1 — Smart Legal Contracts
These contracts are legally binding and obligate the parties to carry out their contractual commitments. Failure to adhere to these contracts may result in severe legal consequences.
2 — Autonomous #Decentralized Organizations
These are blockchain communities bound by specific rules incorporated into blockchain contracts and governance methods. As a result, any action done by #community members is replaced by a self-enforcing code.
3 — Application Logic Contracts
These contracts include application-based code that keeps track of other blockchain contracts. It permits communication between various devices, such as the Internet of Things and blockchain technology.
Structure of Smart Contracts
Let’s start with the most fundamental smart contract structure:
Contract classes in object-oriented languages and Contracts in Solidity have the same structure. State Variables, Modifiers and Functions, Events, Struct Types, and Enum Types could all be included in a contract. You can also utilize other contracts. Inheritance is used.
State Variables
Contract storage is where state variables are kept.
Function
Functions are a few lines of code that can do something within the scope of the contract.
Function Modifiers
Function modifiers are similar to functions that validate the input before executing the main function.
Struct Types
Structs are custom-defined data types that contain many variables.
Events
If event code is written there, events are functions that are bubbled up after the compilation of function execution.
It includes EVM logging capabilities.
Enums Type
Enum is used to define custom types and has a fixed set of values.
Advantages of Smart Contracts
1. Autonomy and cost savings
Smart contracts do not require brokers or intermediaries to confirm the agreement, eliminating the possibility of third-party manipulation. Furthermore, the lack of an intermediary in smart contracts results in cost reductions.
2. Back up
All blockchain-stored documents are duplicated many times, allowing originals to be restored in the event of data loss.
3. Security
Smart contracts are encrypted, and cryptography protects all papers from tampering.
4. Speed
Smart contracts use computer protocols to automate procedures, saving hours in various commercial processes.
5. Precision
Using smart contracts eliminates errors caused by the manual completion of several forms.
Disadvantages Smart Contract
1. Difficult to Change
Changing smart contract procedures is nearly complicated, and any errors in the code can be time-consuming and costly to fix.
2. The possibility of flaws
According to the principle of good faith, parties will deal fairly and not benefit unethically from a contract. However, implementing smart contracts makes it impossible to ensure that the agreed-upon terms are met.
3. The third party
Although smart contracts aim to eliminate third-party involvement, more is needed. Third parties play different responsibilities than they do in regular contracts. Lawyers, for example, will not be required to prepare individual contracts; however, developers will require to comprehend the rules to create codes for smart contracts.
4. Vague terms
Because contracts contain terminology that is only sometimes understood, smart contracts can sometimes deal with ambiguous terms and circumstances.
Use Cases of Smart Contract:
1. Statistic Collection: The decentralized and transparent characteristics of distributed ledger technology can be advantageous in polls, particularly voting processes and other data collations.
Because no single individual or organization can preside over the collation of data and reading of results — everyone can examine the facts and numbers for themselves — smart contracts for voting, population censuses, and statistical collation contribute to developing confidence in outcomes.
Smart contracts can be built to feed the process’s state as it goes live, making it easier for users to accept and trust the process.
The following are some of the advantages of adopting smart contracts for statistical collection:
- Enhanced accuracy of results
- Election costs are being reduced.
- Results that can be trusted because of process transparency
- Fewer resources are required for data collection.
2 Health and Agriculture Supply Chains
According to the United Nations Food and Agriculture Organization, more than one-third of the world’s food is wasted.
In the healthcare field, there are a lot of cases where medicine and other materials could have been used in other medical facilities but need to be made aware of what is available.
Smart contracts, for example, might reduce, if not eliminate, food and medical supply waste. An IoT smart contract can be designed to assign public keys to packages whose data would be stored on distributed ledger technology, with the package’s location and, if necessary, the medical facility that owns it.
This allows stakeholders to access their demands, and we can establish matches between markets and commodities more efficiently to increase efficiency.
A practical use case for these smart contracts would be if different blood types are accessible in different locations, but facilities lack the visibility required to obtain them. Smart contracts make it possible to address this issue and provide additional flexibility inside supply chains to respond efficiently.
Using smart contracts to handle the health and agriculture supply chains means that:
- Proof of existence is freely accessible.
- A commodity’s position can be tracked and updated in real-time.
- Matchmaking is easier to find and can be done on a worldwide scale.
3 Real Estate and CrowdFunding
The token economy expands the breadth of what is possible using real-world assets, creating markets that are easily accessible and offer a more excellent choice of products than what is now available.
The token economy alters how commodities are purchased and traded and how large projects are funded.
Currently, a project is to be created, and funds are acquired. In that case, a lot of paperwork and time is required — both of which are becoming increasingly important in a digitized society. On the other hand, using a smart contract for the same process is as simple as clicking a button and signing up for a wallet.
Furthermore, diverse asset ranges can be tokenized so that different people can hold and own bits. They can sell them at any time on specified exchanges, the same as how non-fungible tokens (NFTs) trade has skyrocketed.
Because of smart contracts, properties such as real estate can be sold online at any time without the lengthy procedure and paperwork needed. This is only one of the many ways smart contracts open new markets and enables flexibility.
The following are some of the advantages of employing smart contract technology in real estate and crowdfunding:
- Ease of use
- More tangible commodities are being tokenized.
- Markets that are open and timeless
- The global economy is adaptable.
4 Identity Management
Existing technologies for preventing crimes such as identity theft should be more effective since many need to give the owner complete control over his data and the information he chooses to share.
Smart contracts based on distributed ledger technologies (decentralized) that use digital identifiers (DIDs) give individuals total control over their data and allow them to share the content of their data as they see fit, increasing security and reducing the possibility of data mismanagement or a breach.
Smart contracts aid in the following aspects of identity management:
- Identity protection
- The user selects the information they provide.
- Simpler KYC verification
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