Smart Contract in Blockchain and Its Benefits
A certain set of programs stored in the blockchain is known as smart contracts. These programs run when the predefined conditions are met. Smart contracts help in automating the agreement execution process by notifying participants about the outcome immediately, without the involvement of any mediator for time loss. Moreover, virtual currencies like Cardano, Solana, etc., and smart contracts operate on the same technology.
How do smart contracts work?
Computer systems execute the set actions when the predetermined conditions are verified and reached. These systems are connected in a blockchain network that is installed with smart contracts. Actions such as issuing a ticket, transferring funds to appropriate parties, sending notifications, or vehicle registration are completed once the blockchain is updated. However, in such cases, only the parties are permitted to see the transaction results. As a result, there is no third-party interference or risk of the data being tampered with.
Smart contracts can be set with multiple stipulations as required, with a focus on each participant’s satisfaction and competent task execution. Members are required to determine how their transactions and execution data should be represented on the blockchain by agreeing on the rules that control the transactions, exploring the exceptions, and defining a structure for resolving disputes.
In such a case, the developer can program and customize smart contracts in the chain. For instance, the Ethereum blockchain allows developers to access the Ethereum Virtual Machine (EVM) to execute code for smart contracts. However, the organizations that implement blockchain for businesses offer a web interface, templates, and other online tools that help them form a simple structure for smart contracts.
Benefits of smart contracts
- Saving and autonomy: The risk of a data breach by any third party is restricted as smart contracts confirm the agreements without any brokers or mediators. The avoidance of any external interference also helps organizations save costs.
- Enhanced accuracy and efficiency: The execution of the process is immediate after the condition is met. As these smart contracts are digital and automated, there is no paperwork to delay the processing time. The chance of making errors while manually filing documents is also removed.
- Digital backup: Documents in the blockchain are copied multiple times, ensuring a secure digital backup and easy accessibility to the contract in the event of a loss.
- Secured data: The transaction data in the blockchain is encrypted and difficult to hack. In addition, each entry is registered in the previous and succeeding block in a distributed structured ledger. Thus, to change one single record, the entire chain would need to be hacked at once.
- Trust: Due to the lack of any third-party involvement and the data record being distributed across the entire chain, altering the information for personal benefit is challenging. This ensures trust among all members of the contract.
Smart contract applications
The use of smart contracts can be done in various fields as stated below –
There have been incidences of patient data breaches in the healthcare industry, such as patient identity and other confidential information. To mitigate this breach of privacy, a private key can be configured to encode the health data of patients on the blockchain. The access key to the patient’s data will only be granted to specific concerned individuals.
Moreover, smart contracts enable secure research. Hospital receipts can be encrypted with a password on the blockchain and shared securely with insurance providers. Medicine and drug supplies can also be managed through the ledger.
Smart contracts are secure, making them less susceptible to hacks that manipulate the voting system. Additionally, the number of people turning up to vote can also increase. Citizens would be drawn to a smart contract-enabled secure voting system that safeguards their votes. Not having to go through a manual verification process is another plus that attracts voters.
Traditional financial services can be transformed in several ways with the implementation of smart contracts. Error checking and transferring payments to the user can be done easily in the case of insurance claims. Furthermore, critical tools for bookkeeping are incorporated by smart contracts, which eliminate the possibility of breach of account records.
Shareholders in financial institutions are also encouraged to take part in transparent decision-making. Additionally, trade clearing can benefit from smart contracts as funds are transferred after calculating the number of trade settlements.
Traditional supply chains are inefficient due to the involvement of paperwork that must be passed through multiple approval channels. Additionally, these types of processes are more susceptible to the risk of forgery and data loss. Smart contracts in the blockchain help eliminate such risks by providing secure and digital version access to the participants in the chain.
This can also reduce disputes among retailers and vendors in the supply chain. Moreover, transparency and real-time communications in the supply chain reduce disputes among retailers and vendors, thereby building strong relations between them.
Smart contracts can eliminate third-party involvement, are less vulnerable to hacks and manipulations, and protect sensitive information. Many cryptos like Ethereum and Solana support smart contracts.