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Everyone is talking about blockchain nowadays. Yes, blockchain technology is the backbone of Bitcoin and other trendy cryptocurrencies. Furthermore, by the end of 2024, companies are estimated to spend $20 billion each year on blockchain technology. As you can see, this industry is gaining potential. In this article, we’ll look into smart contracts, which is a significant topic in the blockchain world.
Some Strange Facts about Smart Contracts
- By 2026, the global Smart Contracts market is expected to be worth USD 345.4 million.
- Trade and banking are two industries that will be benefited the most from the extensive usage of smart contracts.
- Global Smart Contracts companies include IBM, AWS, Oracle, Infosys, Solana, etc. And the top 3 companies among them hold a share of over 52%.
- Smart contracts will speed up the process of property ownership.
What are Smart Contracts?
Smart contracts on the blockchain are self-executing code that automatically implements the terms of an agreement between buyer and seller parties. It is directly written into lines of code.
Now, let me explain the smart contracts to you in simple terms. Actually, in real world you come across a lot of examples of contracts. So, let’s discuss one here. Whenever you go to buy a product, the seller gives you a bill. That bill signifies that the product has been sold to you and you are the owner now. Before your purchase, the seller was the owner of that product. To get evidence of transfer of ownership you take a bill. That bill is the contract between you and the seller. In the same way, smart contracts are the digital versions of this contract. A few lines of code after the transaction of blockchain assets are smart contracts. Also, this is the digital contract between blockchain asset buyer and seller.
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Quick Overview About Past of Smart Contracts
The term smart contract was first used by Nick Szabo in 1997, long before Bitcoin was created. He was a computer scientist, law scholar, and cryptographer. He wanted to use a distributed ledger to store contracts. Now, smart contracts are just like contracts in the real world. As we discussed, the only difference is that they are completely digital. In fact, a smart contract is actually a tiny computer program that is stored inside the blockchain.
Smart Contract Real Life Examples
Let’s take a look at an example to understand how smart contracts work. You probably are familiar with Classy, the largest fundraising platform, product teams can go to Classy, create a project, set a funding goal, and start collecting money from others who believe in the idea. Classy is essentially a third party that sits in between product teams and supporters. This means that both of them need to trust Classy to handle their money correctly. If the project gets complete fund successfully, the project team expects Classy to give them their money. On the other hand, supporters want to donate their money to the project if it gets complete funds. Also, they want to get a refund when it hasn’t reached its goals. Both the product team and its supporters have to trust Classy.
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But with smart contracts, we can build a similar system that doesn’t require a third party like Classy. So let’s create a smart contract for this. We can program the smart contract so that it holds all the received funds until a certain goal is reached. The supporters of a project can now transfer their money to the smart contract. If the project gets fully funded, the contract automatically passes the money to the creator of the project. And if the project fails to meet these goals, then the money automatically goes back to the supporters. Pretty awesome, right? And because smart contracts are stored inside a blockchain, everything is completely distributed. With this technique. No one is in control of the money.
But wait a minute, Why should we trust the smart contract? Well, because smart contracts are stored on a blockchain, they inherit some interesting properties. Let’s look at some advantages of using smart contracts.
Advantages of Using Smart Contracts
- They are immutable and they are distributed. Being immutable means that once a smart contract is created, it can never be changed again. So no one can go behind your back and tamper with the code of your contract. And being distributed means that the output of your contract is validated by everyone on the network. So a single person cannot force the contract to release the funds, because other people in the network will spot this attempt and mark it as invalid.
- Tampering with smart contracts becomes almost impossible.
- Being able to move from one place to another. With a level of security comparable to cryptocurrencies.
- The ability to store sensitive data such as personal information, credit cards, and other financial information.
- The ability to safeguard data in a way that cannot be manipulated or changed, hence building trust in their use.
- Being able to define parameters for self-verifiable agreements
- Being able to set terms and conditions that one cannot question or deny.
- Contracts are executed quickly and efficiently because there is no documentation to file.
- Not having to pay for contracts to be handled by individuals.
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Applications of Smart Contracts
Smart contracts can be applied to many different things, not just on crowdfunding. Banks, for example, could use it to issue loans or to offer automatic payments. Insurance companies could use it to process certain claims. And postal companies could use it for payment on delivery, and so on and so on. So now you might wonder where and how can I use smart contracts?
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Smart contracts will become significantly more prevalent as people gain a better understanding and trust in blockchain technology. These Smart Contracts are better than traditional contracts because they operate on the blockchain and eliminate the need for intermediaries. Smart Contracts also make transactions more efficient, smooth, and cost-effective. Voting, healthcare, supply chain, and financial services are a few examples of smart contract uses.
The first prominent smart contract platform was Ethereum. It was also the most popular smart contract platform, allowing users to define smart contracts in lines of code. In 2014, it raised $2.2 million using an ICO.