Smart contracts are closely related to blockchain technology, so if you want to leverage blockchain in your business, you should learn more about smart contracts and how they work. From this article, you will learn the most important things about them, how they can improve the efficiency of your company and what are some actual, real-life, business applications of smart contracts.
Who would have guessed that a simple program stored in the blockchain can optimize processes in so many industries? Yet, even though the definition of smart contracts may sound simple, not many people understand blockchain. That’s mainly why its full potential is probably still uncovered and only a few companies invest in blockchain-based solutions. Read more to discover new opportunities for your organization.
Smart contracts — important things you need to know
First things first, what are smart contracts exactly? They are self-executing, decentralized applications that are stored and run on the blockchain or other, similar distributed ledger technology. From the technical point of view, it can get quite complicated, as programs that enable users to take advantage of smart contracts can be developed, distributed, and managed in a variety of ways. Fortunately, the basic principle of how smart contracts work is logical and quite easy to understand.
Smart contract is an application that performs a particular action when certain, predetermined rules are met. It simply means that one action is a catalyst for a second one. It is the developer, who defines the catalyst and the process that should be performed. The rules need to be created during smart contract development.
Smart contracts improve process automation. After the entire process is completed, the blockchain (or another network) is being updated, so other users can see the results of what happened. Two very important things that you need to know before you decide to use smart contracts:
- Smart contracts are not legally binding contracts.
- Once the smart contract is written, the rules cannot be changed.
Why are smart contracts becoming so popular in business?
Significant administrative mess reduction and overall business performance improvement, are only some benefits you can experience when switching to smart contracts. What are the other pros of using smart contracts?
The biggest expense of performing various business processes is the fees of agents who are playing the role of intermediaries between two parties. They can be replaced by smart contracts with their predefined rules. This way, many processes that normally require manual work can be automated. If you decide to leverage smart contracts in our organization, the most significant cost will be smart contract development.
When it comes to carrying out agreements the traditional way, there is always a lot to do. Paperwork takes not only tons of paper but also a lot of time. Intermediaries need to prepare contracts, which all parties participating in the process need to sign. Smart contracts eliminate the need for that, so the process can be completed much faster.
The predefined rules are ensuring the security of the transaction themselves, but there is also blockchains’ decentralized structure that improves it. It is quite complex how blockchain technology works in general, and no system is unhackable, but it is more difficult to break its protection.
Process automation in general eliminates human error because machines take care of the work instead of real people. Everywhere, when there are a lot of processes carried out manually, there is a big chance that someone will make a mistake. With smart contracts, processes are free from errors.
Interesting applications of smart contracts
There are various use cases of smart contracts in real life in business. It is highly possible that in the next few years, they will have even more applications, and they will get more popular.
Automating insurance claims
Nowadays, insurance agencies deal with a lot of paperwork and performing transactions takes a lot of time. Smart contracts with their predefined rules can be used to partially automate various processes carried out by the insurance companies. This will speed up transferring the funds to the customers.
There is also an interesting application of smart contracts in the insurance industry, but it requires combining this solution with the Internet of Things smart sensors. What is the point of that? Imagine that there are special IoT smart sensors installed in your car or home. When an accident occurs and a car or flat is destroyed in some way, sensors can inform the right organization about it in real-time. This information could be a catalyst — a condition to be met predefined in the smart contract. After receiving a particular type of data, the money could be transferred automatically from the insurance policy.
Improving the efficiency of Supply Chain Management
In general, the principles of smart contracts operating are easy to understand, but they are not so simple to applications. The thing is. They can contain a lot of information, for example, the price of the products, how long it takes to deliver them, how discounts and penalties should be assigned, what are the payment terms, etc. Quite a lot, isn’t it? Smart contracts increase the efficiency of transactions and reduce the time needed for goods exchange, by automating all the routine tasks related to payments and creating documentation.
Supply chain management efficiency is crucial for a company’s success. Smart contracts can be combined with IoT sensors as well in this case. It would allow those responsible to track the location of the ordered item and plan work according to the current and forecasted state of a warehouse.
Transferring and identifying copyrights
Piracy and other authorship violations are quite common these days, and it is not only a problem for the entertainment industry. Today, copyrights are transferred based on traditionally written contracts. Smart contracts can not only speed up the process of transferring digital goods but also record information about the copyrights, so no one would be able to usurp them.
Smart contracts can be used to ensure the royalties to the specific author or owner. Imagine that you want to sell online courses, magazines, or a novel. With the right application written and stored in the blockchain, you can receive money for downloads of your products automatically and immediately after someone pays for it.
Leveraging Data Marketplace
Information for sale? You may not know about this, but there are platforms that users can leverage to buy or sell different types of data sets and data streams from various sources. Those platforms are called data marketplaces. The most advanced of them uses innovative technologies, such as smart contracts. They use smart contracts to automate the process of purchasing data streams and data sets from users.
Real Estate and Land Titles Recording
Traditional real estate deals take a lot of time and paperwork. If you want to buy a house, flat, or land you always have to pay the fee of an intermediary that will assist you in the process. It is rather expensive.
Transferring property ownership with smart contracts is very fast. The exchange can be programmed in the smart contract, so the process would be executed automatically. It may be triggered by making a payment by a buyer. No intermediaries, no complicated paperwork. Simple, right?
Those are just a few real-life use cases of smart contracts. Don’t hesitate to ask us how this technology can improve the efficiency of your business.