Humans learn from their mistakes and continually improve on the past, fixing loopholes and enhancing systems. Contracts have existed for centuries, but as we enter the digital age, they are evolving into something smarter.
In this blog, we will explore what smart contracts are, why they matter, and how they can benefit us. After all, the purpose of any technology is to serve and improve our lives.
But,
Let’s condense the meaning of a Contract first, shall we ?
What is a Contract?
A contract is an agreement between two or more parties that specifies their mutual obligations — the responsibilities or duties each party must fulfill — and the conditions under which these obligations are to be met.
Why is it Needed?
A contract clearly outlines the terms, conditions, and responsibilities of each party involved. It serves to govern their interactions and provides a framework for resolving disputes should they arise.
Now,
Imagine a situation where one party fails to adhere to the terms and conditions of a contract. In such cases, the matter can be escalated through legal channels, involving government authorities or other parties. However, this process can be resource-intensive, requiring significant time and effort.
Additionally, there may be situations where the parties involved in a contract are not committed to fulfilling their obligations. For example, in lending and borrowing activities, if you trusted someone to lend you money but the lender failed to adhere to ethical terms, resulting in a loss of funds, it can be quite frustrating.
Situations like these inspired the development of a new type of contract. With the rise of transparent systems like blockchain, smart contracts were introduced to enhance trust and transparency while reducing reliance on third parties.
What is a smart contract ?
Smart contract is simply a contract that is a immutable piece of code that is on the blockchain and is self executing based on the situation that are set in the contract while coding it.
So, simply it is a contract which is smart doesn’t require trust as it just lines of code , can’t be changed because it is immutable and can be verified because it’s on the blockchain.
Smart contracts can be coded and can be deployed on the chain which can be either etherium , solana or bitcoin.
Uses of smart contracts
Smart contracts can have a wide range of use cases. For instance, in lending and borrowing scenarios, a smart contract can manage the entire process. The agreement between the lender and borrower is encoded as a smart contract that automatically executes based on predefined conditions.
It ensures that the lender receives both the principal and interest, while also verifying collateral without the need for a third party. This reduces the risk of manipulation and fraud.
Now think of various use cases such as
Insurance — Smart contracts can efficiently manage when the premium shall be given and under which situation the claim should be given, brining in transparency in the system, which is still very common in insurance.
Real Estate — This is yet to be true but many believe that the process of buying real estate one day will be as fast as buying a mobile theses days, well given the pace at which blockchain is evolving, smart contracts can speed up the process, reducing the hassle the system has today.
Voting systems — Another use cases can be voting systems where they are often prone to getting tampered and are accused of, smart contract can help reducing the opaqueness of it leading to a more efficient system.
Gaming and NFTs — Transfer of digital assets like game assets or NFT’s or intellectual property where transparency and trust is required is a good use case of smart contract, reducing the need of trust and making it transparent.
There can be many more like Decentralised exchange (DEX), yield farming, I just tried to pick the simple ones to convey the concept.
If you liked this do let me know and you can share your thoughts to me on by dropping a Hi on my X. I’ll link it with this blog.
Top comments (0)