How Smart Contracts are changing the world? September 30, 2022
How Smart Contracts are changing the world? <BR><BR>
How Smart Contracts are changing the world?
What is a Smart Contract?
In layman’s terms, a Smart contract is a record of an agreement between two or more parties that is written in a computer code, allowing the contract to be executed automatically by computers. The smart contract contains all the information about the agreement including obligations and penalties for non-compliance.
Today, various projects, platforms and applications are built using blockchain and distributed ledger technology, therefore, smart contracts are becoming a critical component.
The term “smart contract” was first coined by Nick Szabo some 20 years ago, he was a computer scientist and cryptographer, a graduate student at the University of Washington. According to Szabo, “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.”
Since the new world of blockchain has caught everyone’s minds and ears, Peak blockchain analyst Garvit Taneja had a chance to get more insight on the future of Smart contracts from one of the great minds of the industry. In an interview with Smit Khakhkhar, a blockchain enthusiast, one can understand how smart contracts can bring a huge change in the way contracts work in various industries, such as Real-estate, Banking and Finance, Insurance, Supply Chain Logistics, and many more.
Smit, the founder of Coin Crunch India, has 6-7 years of experience in the Blockchain Space. He is also a member of The Delta Blockchain Fund. Smit Khakhkhar explained to the audience what smart contracts are and how they are different from traditional text agreements.
He said, “Let’s first understand ‘dumb contracts’ or traditional contracts, anything that is written down on a paper which has to be executed offline. For example, if you have a contract with someone, stating that you will pay $100000 for a piece of land, and a piece of paper has been used to sign the contract. And once you have paid the amount, the person will transfer the ownership of the land to you. This is how any dumb contract works at the present. However, what if that person refuses to transfer the ownership, even after taking the money, then you have to rush to the legal court or authorities?
Now, if would be a smart contract, where instructions get executed in a filter manual computer code that automatically executes all or parts of an agreement and is stored on a blockchain-based platform, there if you have paid the amount of $100000 of USDC for the ownership of the land, now the owner of the land is represented on the blockchain by the means of an NFT or in some other form.
So you construct a smart contract in such a way that once the amount is transferred, within the same transaction the ownership of the land will also get transferred. Or if, if something goes wrong, the amount and the ownership of the land will get canceled and goes back to their owner. Smart contracts, it is like once the code is written, it will execute in that particular manner you don’t need third parties like a court or somebody to enforce that order.
It’s a ‘Fill or Kill’ scenario, either everything goes well or everything is reversed as if nothing ever happened.”
Sectors to benefit from Smart Contracts
On the sectors that would benefit greatly from smart contracts, Smit said, “The sectors that may get into Smart contracts early on are Finance and Real Estate, or maybe Insurance. There are already various pilot projects running. They’ve started representing actual houses or land ownerships on the blockchains using NFTs.”
According to him, there will be economic implications too, “There are various predictions that blockchain technology will impact the global GDP by 1.76 US Dollars by the end of 2030. The idea of Smart Contracts is tied to crypto, as the crypto industry is booming, so Smart Contracts will too come up. Centralized baking entities are also getting into Decentralized Finance, but with caution. There are banks that are likely to explore the Decentralised finance option, however, they are still figuring out a legal framework.”
Cons of Smart Contracts
Smart contracts save on costs as there are no third parties involved except for gas fees, as well as it eliminates paperwork. However, he has discussed a few demerits too, one such demerit he has pointed out concerns privacy as any data available on the blockchain is visible to all. Smit says, “In the coming years there would be a lot of evolution on the tech side and all these cons would be figured out as well. So, in terms of the regulatory aspect, you know since there is no Central Authority in blockchain, there may be a body that may come up in the future to design the whole infrastructure, something that we have not yet envisioned.”
To get deep insights into the future of Smart Contracts, click on the link below and hear directly from industry expert, Smit Khakhkhar.