Wouldn’t it be great if we had someone or something else that could take care of all the big, important jobs for us? Well, that’s exactly what smart contracts are for.
These days, pretty much most things are carried out digitally. So, when we talk about smart contracts, we aren’t referring to ornately decorated paper copies of legal documentation or agreements. We’re actually referring to the blockchain.
In a busy and ever-growing world, everyone’s always on the lookout for more things and faster. To accommodate this, blockchain technology has been developed to process massive amounts of transactions at unprecedented speeds. This has opened up a world of possibilities, from large financial transactions, to a new way to store data.
But, with these networks being so vast, they can’t be run or maintained manually. That would take a superhuman. The next best thing to a superhuman, however, is on hand to do this job. It is, of course, computers!
What Is a Smart Contract?
The thing that makes blockchain technology tick along is smart contracts. This can be viewed as an agreement between two people or participants, that exists in the form of computer code.
Essentially, when the requirements of a smart contract is met, an action will be automatically executed on the blockchain. This could be the trading of cryptocurrency, to the purchasing of an NFT. Since the action is automatic, it means there’s no need for a third party. This is attractive because it provides a trustless nature, meaning no relying or depending on one sole person or organisation.
Becuase smart contract transactions are stored on the blockchain, they are visible to everyone, as well as irreversible. This makes them incredibly secure.
How Do Smart Contracts Work?
If you want to get deep into how smart contracts function, things can get pretty complex, pretty quickly. However, the fundamental concept is easy enough to understand. For those who may not be the most technically minded, we’ll keep it light.
Smart contracts work similarly to setting up rules on an email inbox – they follow the “if/when, then” rule. Youtuber rareliquid sums up how they work in under three minutes, if you’re short on time (it’s actually two and a half minutes!).
As explained in the video, vending machines can be loosely referred to as primitive iterations of smart contracts. When you insert the correct money, according to a given price, into the machine, then it will dispense a product. There’s no cashier or person operating the machine, it’s all automated.
The benefits to smart contracts being based in code is that they cannot be changed. This reduces the opportunity for any funny business or fraudulent activity.
Application of Smart Contracts
From a business perspective, smart contracts are efficient both in speed and cost. Because everything is automatic, there’s no need to pay middlemen. Plus, becuase it occurs on the blockchain, there’s no need to pay for data storage – it’s all stored across computers connected to that particular blockchain network.
Some applications of smart contracts include improving supply chain transparency and things of a logistical nature. Specifically, this can refer to improving the transport of lifesaving medications, by increasing the transparency around medical supplies.
Another application is increasing the speed and security of international trading. As soon as money is sent around the globe, things tend to slow down and become convoluted. Smart contracts ensure that this sort of trade is just as quick as sending £10 to your friend down the road.
Fractis uses smart contracts to ensure the smooth, speedy, and simple buying and selling of music royalties NFTs. Get involved in better music investment, and be part of the music royalties revolution!
Learn more here.