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What are smart contracts and what is their potential for business?

Are you interested in blockchain technology, and you are wondering what its business potential is? To understand the possible application in your industry, you first need to learn how it works. One of the most useful tools associated with blockchain is smart contracts. They enable transferring not only fiat currency and cryptocurrencies but also other resources.

Smart contracts are applications – simple programs stored on the blockchain. Their role is significant – these programs allow users to automate the execution of some agreement, for example, a transfer is carried out automatically when some predetermined conditions are met, or some process is triggered by completing another. Sounds easy? Follow our article to learn more about the business application of smart contracts.

Smart Contracts in the blockchain – what do you need to know?

Although blockchain development services for business are not yet very popular, more and more companies start to wonder, what are the applications of blockchain-related technologies. Smart contracts are self-executing, decentralized applications that run on the blockchain network or other distributed ledger technology. Do you need some more technical information? There are multiple, various architectures leveraged in this IT area, so programs that are underpinning smart contracts can be developed, distributed, managed, and updated in many ways. The most important thing you need to know at the beginning is that smart contracts are automatically performing particular processes that are programmed in them when some predetermined rules are met.

Although smart contracts are not legally binding contracts, they can enable organizations to significantly reduce or remove at all an administrative mess by automation of transactions and various processes. 

Business rules in the form of software – how does it work? 

Smart contracts work based on simple rule:

“If A-action happen, the B-action follows immediately”

Such statements essential for process automation are written into code on a decentralized network (for example, blockchain). It is quite simple – some predetermined conditions are met and when meeting them is verified, some other actions are executed. After the whole process, when a transaction is completed, blockchain is being updated and parties engaged in the process (or the ones who have been granted permission) can see the result of it. 

Before participants decide to carry out their transactions using smart contracts, it would be wise to carefully think of the rules. You need to consider possible exceptions to those rules and consider the outcomes of applying this solution in your business. If you decide that smart contracts can solve some of your organizations’ efficiency problems, go ahead – the smart contracts can be programmed by a developer, but more and more organizations that use blockchain for business purposes provide useful tools like templates, intuitive web interfaces, and others which you can leverage for your advantage.

The importance of data accuracy for smart contracts

Smart contracts are not really “smart”. There are only rules written in a code, so they are only as good as the conditions users create. That means that:

  • quality programming is very important,
  • the accuracy of data fed into a smart contract is crucial,
  • you need to consider if the rules are well-thought-out, as once they are placed on blockchain, they cannot be changed.

Yes… you need to keep in mind that once a contract is written, neither the user nor developer can change it. 

Now, data necessary for executing smart contracts are fed into the blockchain from external sources – special data feeds and APIs. Blockchain is incapable of fetching data directly. The real-time data feeds that are used in blockchain are called “oracles” (they can be software- or hardware-based). 

The accuracy and quality of information are very important, as executing smart contracts depends on received data. If a group of companies wants to leverage this technology, each party must be able to trust in the reliability of the external data source. That is one of the main sources of uncertainty for the companies, who consider using smart contracts. Still, you need to remember that the technology is not very mature yet and surely there will be some work done to reassure and secure future users of blockchain and smart contracts.

Smart Contracts business application examples

There are a lot of interesting applications for blockchain and blockchain-related technologies such as smart contracts.

Business processes automation

Various business processes can be automated by implementing smart contracts. With multiple tasks performed automatically, you not only save time but also reduce expenses related to performing them manually. Your employees will gain extra time to deal with duties that require a creative approach and human intelligence.

Granting access to data

With smart contracts, you can take care of the privacy protection among companies you cooperate with. You can facilitate the selective release of privacy-protected data to meet a specific request. It can improve efficiency when it comes to performing administrative tasks. This technology can be also used for unlocking content (documents, work files, and others) protected by digital rights management.

Money release automation in insurance companies

First, smart contracts can be leveraged to partially automate and speed up transactions. Probably for a long time smart contracts will not replace traditional, written on paper agreements, but still significantly improve the speed of transferring the funds.

The second application requires combining smart contracts technology with the Internet of Things smart sensors – those can be placed in homes and vehicles to send real-time data about accidents that occur. This information can trigger the money transfer from the insurance policy when predetermined conditions are met. 

Resilient supply chains

Reducing issues in transport can be crucial for the success of the companies in various industries, for example in healthcare where often fast delivery of meds or other equipment can be a matter of life or death. Using smart contracts increases the efficiency of the transactions and, by doing so, speeds up the exchange of goods.

Reduced costs of services related to property ownership

Smart contracts are a good alternative to traditional systems for recording property ownership. Information is recorded faster, and such a solution is certainly more cost-efficient. Such property recording could be applied to any kind of property and on the real estate market, this technology removes the need for services provided by lawyers and brokers.

The future of smart contracts

Smart contracts may seem to be simple, but this is quite complex technology as well as blockchain, and there will surely be some time until it will get truly popular in various industries. This technology is more than a method for transferring assets. It has great business potential. We only mentioned a few possible applications of the small contracts, but it is possible that in the future, smart contracts will be used by non-business users daily. If you want to be ahead of the competition, don’t hesitate to ask us how we can transform your company thanks to smart contracts.
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