With the global market size projected to reach USD 345.4 Million by 2026, Digital Smart Contracts are the newest technological favorites of the Cryptocurrency world. Inherent with Blockchain technology, Smart Contracts are critical in addressing numerous challenges in the contract management lifecycle.
This distributed ledger technology ensures enterprise-wide operations transformation by quickly capturing crucial organizational commitments, obligations, and rights data.
Due to its obvious benefits, crypto Smart Contracts, which work on self-executing code on Blockchain technology, are generating significant interest across multiple industries, including Banking, Government, Management, Supply Chain, Automobile, Real Estate, Insurance, and Healthcare. Let’s take a deeper look into how Blockchain Smart Contracts are significantly disrupting contract management scenarios and helping organizations achieve their digital transformation goals while maintaining the accuracy, reliability, and trustworthiness of the exchange during digital contracting.
What is Digital Contracting? Let’s learn why it matters
Can the future of digital transactions really be found in Blockchain-based digital contracts? Why do we even need to rely on digital contracts when traditional paper contracts already exist in the first place? Well, the first era of record-keeping and contract management belongs to the traditional contracts that comprise specific agreed-upon terms and conditions in a human language agreed upon by two different parties. Extreme centrality, lack of transparency, poor user experience, risk of fraud, and compromised security are major problems associated with the traditional forms of contract.
However, the second era marks the evolution from the old-fashioned paper-based predecessors to Blockchain-based digital contracting. Institutions like banks, brokerages, stock exchanges, custodians, clearinghouses, and other intermediaries are now relying on a breakthrough called Smart Contracts that are underpinned by Blockchain (Ethereum) technology.
Crypto Smart Contracts are self-executing agreements for every kind of digital asset class, every corporation, and all economic activity without much dependency on a human third party or central operator. Many organizations truly believe that Blockchain and smart contracts are the present and future of contract management and digital transactions.
As predicted by Gartner, companies adopting Blockchain-enabled digital Smart Contracts will witness an increase in their overall data quality by 50% by 2023 and reduced data availability by 30%. Indeed, Smart Contracts have the immense potential to fundamentally transform how enterprises manage their commercial contracts by quickly making them digital, shared, and tamper-evident.
Is Blockchain and Smart Contracts the next big wave for enterprises?
Smart Contracts look quieter. The Blockchain revolution has emerged as a prime foundation of trusted exchange. Cryptographer Nick Szabo first revealed the concept of Smart Contracts in 1997 during his research on digital contracts and digital currency. Back then, he described Smart Contracts as a major element of cryptocurrency, enabling secured digital automation by using computer codes and the newest cryptographic algorithms.
“New institutions and new ways to formalize the relationships that make up these institutions are now made possible by the digital revolution. I call these new contracts “smart,” because they are far more functional than their inanimate paper-based ancestors. No use of artificial intelligence is implied. A smart contract is a set of promises, specified in digital form, including protocols within which the parties perform on these promises. [3]
At its foundation, this dominant Blockchain-based technology can be explained as the self-executing digital agreements created using computer code without any human dependency. Such digital crypto contracts are executed and performed autonomously following the initiation of the involved parties. Most of the smart contracts are automatically executed most often on the infrastructure created by Ethereum and embedded to address the complex business environment rules.
Autonomy, self-sufficiency, and decentralization are the three major features of Smart Contracts. At their core, autonomy refers to automatic contract executions. No maintenance plan and availability of network resources foster self-sufficiency, and no dependency on any central server or database makes these digital contracts decentralized.
In comparison to the age-old traditional contracts, the Crypto Smart Contracts allow companies to push the boundaries of innovation by letting them control
- Uncertainty: Blockchain-based digital smart contracts are based on computerized code, and there is zero probability of uncertainty due to the usage of ambiguous natural language.
- Speed: Smart Contracts ensure high speed by typically automating the digital contracting lifecycle. There is a minimal dependency on any third party or intermediate agency required during the entire process because they are executed and implemented instantly using the Solidity programming language.
- Cost: Minimal human involvement instantly cuts down the operating costs involved in the performance of smart contracts. However, companies cannot escape upfront costs associated with the development and implementation of the frictionless smart contract platform.
Counting on the above-mentioned benefits, the adoption of the transformative Smart Contracts technology is surging as businesses across industries want to future-proof themselves against continued business disruptions i.e. rapidly changing business models and situations. Indeed, the crypto Smart Contracts provide an innovative way to draft and sign existing contracts digitally wia th minimum friction, higher efficiency, greater transparency, and encrypted data. Furthermore, the technology allows companies to securely view, revise and accept changes in contracts – all using an incorruptible digital ledger called Blockchain.
How do Blockchain Smart Contracts work? A step-by-step guide
The Smart Contracts work on the principles of “code is the law”. In contrast to traditional contracts, every digital smart contract is typically identified by a unique address that digitally facilitates the verification, control, or execution of a digital agreement through a Blockchain platform.
Technically, the digital version of the standard paper contract is embedded into a transaction protocol or lines of code that represents a number of different conditional statements. Whenever the code is created for Smart Contracts over the Blockchain network, the digital version automatically gets stored and replicated among the verified parties who consented to the contractual terms and conditions.
The next step in the process is the automatic running and execution of code across multiple systems available in the Blockchain network when predetermined terms and conditions are met following simple “if/when…then…” statements. This way, the lines of code ensure more transparent and secured facilitation of agreed terms and conditions verified by all participants.
Crypto Smart Contracts: Unveiling top reasons why businesses desperately need digital agreements
Adoption of Blockchain Smart Contracts is on the rise with no signs of slowing down. As predicted by Gartner, crypto smart contracts are expected to become the most critical component of the global digital infrastructure. Companies will leverage this distributed ledger technology to execute various agreements, digital interactions, and/or transactions of blockchain-based digital assets in a proactively enforced form that guarantees better observation and frictionless verification.
Adoption of Blockchain Smart Contracts is on the rise with no signs of slowing down. As predicted by Gartner, crypto smart contracts are expected to become the most critical component of the global digital infrastructure. Companies will leverage this distributed ledger technology to execute various agreements, digital interactions, and/or transactions of blockchain-based digital assets in a proactively enforced form that guarantees better observation and frictionless verification.
Here’s why Smart Contracts are so hyped as the much-needed revolutionary shift:
- Better speed of execution: Smart Contracts are made of auto-executing pieces of code, which are fully transparent and decentralized with zero dependencies on any third-party intermediaries. With all of the mutual agreements sorted between two parties, the controls of execution for these crypto-based decentralized agreements are absolutely secured with two parties in a fair manner. With the digital contracts, the power of execution is with you and you can execute them automatically whenever the agreed parameters are met.
- Extreme safety: The Blockchain-based decentralized contracts come with zero risk of manipulation by third parties as they are encrypted intelligently. Smart Contracts follow simple “if/when…then…” statements to restore encrypted data, which makes them very hard to hack.
- Higher efficiencies: In comparison to the traditional contracts, the decentralized contracts offer higher level of speed, accuracy and transparency with minimal complexities of manually filling out heaps of forms. Furthermore, these contracts are fully visible and accessible with no room for misinterpretation while executing transactions processed per unit of time faster over the internet.
What are different types of smart contracts?
When it comes to categorize the self-executing crypto Smart Contracts, they can be broadly classified into:
- Smart Legal Contracts (SLCs): It is the most common type of digital smart contract. As the name indicates itself, it is legally enforceable for the active participants to meet the agreed contractual terms. However, the failure to fulfill agreed obligations by any party mentioned in the digital contract often result in strict legal action. Such types of contracts are ideal for transactions pertaining to the financial and real estate market, government subsidies, international trade, etc.
- Decentralized Autonomous Organizations (DAOs): Decentralized Autonomous Organizations primarily represent the specific communities running on the Blockchain networks. In such communities, every active participant has to follow a set of agreed community rules combined with governance mechanisms, and the members need to work accordingly. The set of community rules are embedded into code via smart contracts.
- Application Logic Contracts (ALCs): Application Logic Contracts are self-executing digital contracts embedded with an application-based code designed to stay in-step with other Blockchain-enabled contracts. The objective of ALCs is to drive frictionless communication across different devices namely the merging of the Internet of Things (IoT) with Blockchain technology.
Smart Contracts in Blockchain: Best real-world use cases and examples
In the recent years, the Blockchain-enabled Smart Contracts technology has already influenced numerous industries, and given below are some application areas of Smart Contracts:
- Financial Services:
The future of banks and financial institutions is shining bright with Blockchain Smart Contracts, which are tamper-resistant, self-executing, and self-verifying agreements enabled by distributed ledger technology (DLT). It is hard to underestimate the potential benefits of these programmable contracts as a worthy option over the traditional financial contracts, which are prone to higher inefficiencies like delays, human errors, and fraud exposure.
Embracing Blockchain-based Smart Contracts is indeed a critical step forward for banks and financial institutions to streamline their processes while improving customer satisfaction. Organizations are leveraging this decentralized breakthrough to transform financial intermediations and avoid business risks during loan eligibility validation, trade clearing, claims-processing, trade finance documentation, executing transfer pricing agreements, KYC processing, peer-to-peer transactions, and so on.
Here’re three top areas where Smart Contracts in Blockchain are creating significant impacts:
- Decentralized finance (DeFi): It is one of the most impactful developments enabled by adoption of Ethereum-based Smart Contracts with minimal involvements of brokerages, exchanges, or banks. Interestingly, the rising industry’s maturation and progress towards DeFi applications (DApps) are reshaping the current centralized global financial infrastructure. The DeFi projects strongly relies on open-source internet protocols and leverages Smart Contract to facilitate seamless financial services between two counterparties, without the need for an intermediary in today’s tiered financial system.
- Trade clearing and settlement: It is another major area of disruption where Blockchain-enabled Smart Contracts are utilized at their full potential to automate approval workflows and clearing calculations. With the adoption of decentralized contracts, organizations are able to streamline the highly labor-intensive trade clearing and settlement processes, which are prone to human errors, costly resolutions and settlement delays.
- Insurance: Smart Contracts underpinned by Blockchain are creating transformative impacts inn the insurance and claim processing landscapes. They are making the sector more efficient by sorting everything from general insurance record-keeping to paper-based documents, release of payments, and databases using rules-based automated operations. The benefits of smart contracts in insurance are many including improved customer experience of insurance products, automated claims payment processes, reduced claims administration costs, and less fraudulent claims.
- Real Estate:
Real Estate, one of the largest application areas with projected growth of over $3717.03 billion by 2025, is majorly disrupted by Blockchain-based decentralized contract technology. Smart Contracts facilitate a seamless payment and leasing experience by enabling the tokenization of real-world assets.
With this distributed ledger technology, every transaction from lease to license, rent to security deposits, and fees to maintenance becomes risk-free as they are automated using a secure system and embedded on the chain in real-time. Furthermore, Smart Contracts streamline the complex tasks of preparing different auditing documents such as balance sheets, cash flow statements, and income statements effectively.
Presently, the industry is witnessing huge progress towards on-chain logic via hybrid Smart Contracts to automate several activities such as real estate transactions, asset management, transferring real estate ownership, loan and mortgage securitization, registries and sales, triggering recurring rental payments, the processing of securities, liability management, document processing, funds management, and traditional settlement outputs.
Using data-driven logic in Real Estate instantly unlocks many significant benefits of greater transparency, additional liquidity, an immutable audit trail of ownership, streamlined processes, disintermediation, enhanced security, and meta-governance.
- Government:
There are many processes within the Government and Public sector where Blockchain-based integrity-protected Smart Contracts are implemented to achieve key benefits like integrity guarantees, verifiability, accountability, increasingly accelerated levels of productivity, greater transparency, direct collaboration, and payments between the parties. The main objective behind expanding the technological capabilities is to make government services more transparent, seamless, and efficient. Domains like medical, infrastructure, city governance, asset and data management, and education are top application areas where these crypto contracts come in handy.
Digital signatures during KYC (know your customer) procedures are one of the best examples of how Digital Smart Contracts are harnessed in the Government and Public sectors to streamline complex KYC operations without any human intervention. Using this Blockchain-based solution, the government sector tried to address a problem that was plagued by the shortcomings of traditional approaches to dealing with important consumers’ data.
While adopting digital signatures, the triggering problem was the authenticity of documents when submitted for KYC procedures, as the signatures are prone to be forged or stolen. Blockchain Smart Contracts solved this problem through privileged certification node checks while dramatically reducing the time needed for authenticity checks. As a result, the Government is able to realize the technology’s full potential and deal with security vulnerabilities and design flaws also.
Land-use registry and proof-of-ownership is another application area where many Government and Pu,blic officials embraced Blockchain Digital Contracts as a game changer to solve day-to-day security and operational challenges while accelerating the speed of transactions seamlessly. Furthermore, Smart Contracting plays a vital role in protecting a individual’s real identity from being discovered, which is a major concern for many governments who require to securely verify a user’s identity while processing a transaction.
Presently, the Government and Public sector rely on the Blockchain technology to solve legacy pain points across digital currency/payments, tracking vaccinations, identity management, central banking, supply chain traceability, health care, corporate registration, taxation, payroll tax collection, voting (elections and proxy), and legal entities management. Use of Blockchain technology via self-executing contracts also minimized the overall burden of documentation and administrative work required to seamlessly execute transactions. As a result, there is greater transparency in dealings, accuracy in data, and enhanced security as the distributed ledger is more secure.
- Healthcare:
An efficient management of data is one of the major challenges for the healthcare industry. Harnessing the Blockchain-powered self-executing Smart Contracts enabled healthcare providers to secure healthcare data by decentralizing important patient health information. This technology breakthrough as a valuable tool further helped in dealing with cybersecurity incidents, track pharmaceuticals, and secure transactions, revolutionizing the industry worldwide across hospitals and other medical facilities.
- For Pharmaceutics: Over traditional data management practices, the decentralized distributed technology underpinned by Smart Contracting deploys advanced cryptography mechanisms, which instantly enhance data security quotient. Furthermore, it offers accelerated levels of transparency across data ownership, drug traceability, clinical trials, time stamping, and record-keeping. What’s more? Smart Contracts provide end-to-end support for reliable and auditable documentation executed for clinical trials that too with its immutable and highly secured records while eliminating intermediaries.
- For Patients: Many healthcare systems rely on digital contracting solutions to empower patients with seamless ownership of their medical data by applying consent mechanisms, which strictly prohibits healthcare providers from accessing encrypted Protected Health Information [PHI] without patient permission. Additionally, it streamlines the procedure of collecting and storing patient data from wearable devices in a secure manner.
- For Insurance: Blockchain technology plays a crucial role in streamlining health insurance claim verification by automating the medical claim process. It helps hospitals, insurance companies, patients, and TPAs to overcome problems related to fake health records, fake identities and fraudulent claims
The key benefits Blockchain-based Smart Contracts add to different healthcare operations are data management, accelerated medical credentialing, transformed patient medical records to a decentralized system, and secured ownership of patient medical data.
- Supply Chain
The supply chain industry faces numerous challenges due to the traditional data management practices. Relying on Blockchain-based Smart Contracts enable businesses to drive transparency and traceability across end-to-end supply chain operations, which majorly include releasing payment, recording ledger entries, and administrative tasks with minimal manual intervention.
From production to delivery, adopting digital contracts technology in the supply chain help organizations to unlock tremendous business value by digitization of physical assets and creating a decentralized immutable record of all transactions. It streamlines the complex process of record keeping by authenticating transactions along with the accuracy and efficiency of large data sets.
Furthermore, the Blockchain technology plays a crucial role in minimizing profit losses from counterfeit and gray market trading by eliminating the impact of counterfeit products and reducing administrative paperwork costs. What’s more? Organizations involved in the efficient warehousing systems, sophisticated freight tracking methods and strong e-commerce integrations are also leveraging self-executing Smart Contracts for container management solution transmitting live temperature, pressure and vibration – without any human interaction.
The future of Smart Contracts: How they will change the Blockchain Development
The future of crypto Smart Contracts looks very bright with the global market size projected to reach USD 345.4 Million by 2026 and USD 770.52 Million by 2028, growing at a CAGR of 24.55% from 2021 to 2028. The self-executing digital Smart Contracts technology is arguably the most significant innovation that is gaining widespread popularity amongst individuals, companies, and even governments over traditional contracts.
The most fundamental difference that makes the smart contracts truly “SMART” is the self-enforcing protocols that run on the Blockchain network to carry out a set of instructions simplifying business processes and trade between anonymous participants.
Decentralization, cryptographic security, transparency, less human involvement, encrypted security, data security and reliability, real-time traceability, lower execution risk, error minimization, and greater precision are the top reasons fueling the rising popularity of Smart Contracts across various industries such as supply chain, banking, government, insurance, and real estate.
What is the process of building an Ethereum smart contract with solidity? Quick Tips Revealed
Many organizations believe that Blockchain-based self-executing Smart Contracts are all together a new concept, which was first invented using the Ethereum platform. However, there are numerous Blockchain platforms like Solana, Cardano, Stellar, Tezos, Neo, Docker, Scala, EOS, Hyperledger Fabric, Waves, and Polkadot that available in the digital landscape to facilitate, verify, and enforce Smart Contracts.
But, Ethereum is one of the most preferred choice for the deployment and execution of Digital Smart Contracts because it provides a potential distributed infrastructure of Blockchain having multiple distributed nodes to execute the transcations automatically via digital agreements. Highest level of robustness against attacks is the potential reason why organizations rely on the Ethereum Blockchain platforms.
Furthermore, Ethereum is a low-cost, open, and flexible platform powered by a decentralized architecture, which is designed to allocate data in a very effective and secured way so that network participants do not have to depend on any central entity to manage their digital agreements. Granularity of privacy, scalability, standardization, security, large network size, eloquently written rules, clearly defined development guidelines, and its own coding language called Solidity are the top reasons why Ethereum is popular as the world’s best Smart Contract platform.
Yes, Ethereum comes with its own statically-typed curly-braces programming language called Solidity, which is used by many developers for implementation of smart contracts, decentralized applications and their front-end user interfaces on Blockchain platforms. The key objective of Ethereum Solidity is to enable Smart Contracts to conduct traceable and irreversible transactions seamlessly without the involvement of a third party.
The language, is highly influenced by C, C++, Python and JavaScript. Solidity comes with different variables, functions, classes, arithmetic operations, and string manipulation, which are used together to create machine-level code. These codes are further executed to automate a chain of transaction records on the Ethereum Virtual Machine (EVM) when any individual uses digital contracts.
To develop an Ethereum Smart Contract using Solidity language, there are a number of prerequisites to be followed:
- Create a wallet using MetaMask: Wallet is a critical step in the process of developing an Ethereum Smart Contract. Start by installing MetaMask in your web the browser and activate it successfully. Now you need to click on “Create Wallet” and proceed with an agreement to the various mentioned terms and conditions by clicking “I agree” and create a password to back up and restore your account via a secret backup phrase.
- Choose the test network: Next step in the process is selecting the test network from different available options such as Robsten, Kovan, Rinkeby, and Goerli in your MetaMask wallet.
- Deposit some dummy Ethers to your wallet: To execute the testing phase of Smart Contracts seamlessly, there is a need to add some dummy ethers to your MetaMask wallet by clicking on the “Deposit” and “Get Ether” buttons available under Test Faucet.
- Install editor Remix to write codes: Now, you must install and activate Remix Browser IDE to start writing Solidity code. Remix tool has a handful of great functionalities such as warnings to check overlapping variable names, integrated debugger, error highlighter, static analysis, injected Web3 objects, and more. The next step is creating a “.sol extension file” using Remix browser. “.Sol” can be explained as a standard template for creating smart contract code. Don’t forget to choose the right version of the compiler from the Remix browser to successfully proceed towards compiling the solidity Ethereum smart contract code.
Plan your next move wisely
Smart Contracts are a quieter Blockchain revolution, and it has already given rise to a remarkably different momentum for digital contracting. Unlock the immense power of Blockchain and Smart Contracts with a reliable Blockchain development company to drive efficiencies or new business capabilities. This way, you can overcome challenges related to contract management and bridge the widening communication gaps between entities and the individual systems by using Blockchain technology in Smart Contracts.
Outsourcing custom smart contract development services who works on the technology front, will help develop a leading-edge, and front-end consumer-friendly experience for Blockchain-enabled Smart Contracts through frictionless platforms and applications while meeting the objectives of a particular use case.