Why Smart Contracts Matter? How Does It Work?

If you’re curious to know what a smart contract is all about, read on…

It is a piece of code written on the blockchain that enables a secure value exchange.

Why does it matter?

We know that organizations have to work with other parties for various engagements.
How do they know the other party is transparent and can be trusted?

Things can go wrong if they don’t tread carefully.

The result?
They have to depend on intermediaries to draft the agreements and contracts, which itself is a huge expense and time-consuming process.

Smart contracts can ease this process.
The terms and conditions agreed upon by both parties cannot be changed whatsoever, without the knowledge of these parties involved.

Also, these contract conditions are observed publicly. This means that if anything is tampered with, the nodes on the network get to know them.

Now, how does this gets executed?
A trigger event will be written on the contract. Once it is triggered, the contract gets executed by itself.

If you have a thought on where does it stand when looked at from a bitcoin perspective.

Let’s see that.

Bitcoin blockchain has a basic accounting functionality. It verifies transactions and updates the wallet of the payer and the payee. That’s it. It isn’t capable of executing complex algorithms.

Smart contracts are created on multiple blockchain platforms, ethereum being the most commonly used one.

Advantages

Let’s do one thing.
I’ll try referring to a scenario that we all might be familiar with.

Consider that you have an insurance policy.
And the conditions were met for you to get the claim.
Think about the process you go through to convince the insurance company and get the claim amount to your bank account.
We can agree that it is a tedious process.
Mostly, because of the intermediaries and time-consuming process of verifying and approving the claim.

Things have improved a lot in recent years but far from efficient.

Imagine we have a smart contract with the Insurance company.
All the terms and conditions for the claim were listed on this contract.
Once the event is triggered, maybe a hospital admission, which routed the smart contract to get activated. It then verified the terms and we got the claim amount in our account in a fast manner.

I know I have over-simplified the process, but you get the gist.

Look at the case above and see the effectiveness of a smart contract.

It is cost-effective, time-saving, secure, accurate. These are all the advantages of introducing smart contracts in the process.

Look close enough, the change happened when you replaced the intermediary agents with smart contracts.

Use Cases

Think about all the cases where we can replace intermediaries and bring in trust and transparency.

Insurance, supply chain management, financial data recording, property ownership are some of them.

Think about the hectic process involved in property ownership changes.
Also, consider the data tampering involved in property rights.

Smart contracts can make the entire process foolproof, fast, and effective.

Smart contracts are not perfect and have a long way to go to be implemented widely in our everyday tasks.

Even then, we have tremendous advantages of the transparency and trust it provides.
Ultimately, technology and innovation have to make our lives easier.