To understand the concept of “what is a smart contract?” consider the purchase of a chocolate bar from a vending machine. The buyer deposits change then presses the button corresponding to the selection. That button, mapped against that particular slot, activates a lever in the machine to push out the candy. The transaction occurred without the need for a cashier or clerk. A smart contract is similar to a vending machine in that it eliminates the need for an intermediary. In this case, the vending machine is replacing a direct seller and allowing the consumer to make a purchase without a middleman.
What is smart contract?
Smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met. They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss. They can also automate a workflow, triggering the next action when conditions are met.
Traditionally, when two parties enter into a contract, they utilize the services of a trusted third party to execute the agreement. It’s been done this way for centuries. However, the introduction of smart contracts and its related technologies is automating what has been a laborious manual process. In this article, we will explore the technology behind smart contracts and how they can be put to use. First, let’s understand some of the key advantages of smart contracts over traditional contracts
- Data Storage
- Safety and Efficiency
Some of the popular use cases
Government: Vote to your government could be a use cases as it is extremely hard for a voting system on blockchain to be rigged, but using smart contract you can have hugely secure voting system and also it could help in many regions to have hike in voting turnout as much of the problem in turning up for the vote is to be lined up in the queue, prove your identity etc.
Case history Banks can use smart contracts to log a change of ownership & automatically transfer payment to other financial institutions
Automobile Insurance Using smart contracts, an automobile insurance company could charge rates differently based on where, and under which, conditions customers are operating their vehicles.
Health Care Personal health records could be encoded and stored on the blockchain with a private key which would grant access only to specific individuals. The same strategy could be used to ensure that research is conducted via HIPAA laws.
Receipts of surgeries could be stored on a blockchain and automatically sent to insurance providers as proof-of-delivery. The ledger, too, could be used for general healthcare management, such as supervising drugs, regulation compliance, testing results, and managing healthcare supplies.
Crowdfunding Suppose you want to start a business requiring funding. But who would lend money to someone they don’t know or trust? Smart contracts have a major role to play. With Ethereum, you can build a smart contract to hold a contributor’s funds until a given date passes or a goal is met. Based on the result, the funds are released to the contract owners or sent back to the contributors. The centralized crowdfunding system has many issues with management systems. To combat this, a DAO (Decentralised Autonomous Organization) is utilised for crowdfunding. The terms and conditions are set in the contract, and every individual participating in crowdfunding is given a token. Every contribution is recorded on the Blockchain.
A “smart contract” is simply a program that runs on the blockchain. It’s a collection of code (its functions) and data (its state) that resides at a specific address on the blockchain which has wide variety of use cases because of its design.