Smart contracts are basically programs stored on the blockchain that interact or run when certain conditions are met. They are simply used to carry out or execute transactions when all parties have fulfilled their part of the transactions without the interference of a third party. One of the many problems that smart contracts came to solve is the removal of external factors such as; Legal fees, Delay in completion of transactions, etc.
How Does Smart Contract Work?
In similar terms with the traditional contract, a smart contract has well-written rules and penalties guiding a transaction to reward the parties involved at the end of the transaction or penalize any parties involved in the contract that defaults. So, what makes them smart if they perform the same functions as traditional contracts?
These contracts are smart because they are self-executing, with the conditions of the buyer-seller agreement explicitly inscribed into lines of code. Furthermore, the code and its agreements are dispersed and decentralized over a blockchain network making transactions trackable and irreversible while the code controls the execution.
Simply say, Smart contracts allow trustworthy transactions and agreements to be carried out between diverse, anonymous individuals without the requirement for a centralized authority or an external enforcement mechanism.
This is made possible because of the components of a smart contract.
The essential components of a smart contract are called Objects, and there are mainly three crucial objects in a smart contract;
- The signatories:- These are the parties involved in the smart contract that uses digital signatures to approve or disapprove the terms of the contract.
- The subject of the contract
- The exact terms of the contract
It is imperative to note that smart contracts are not just deployed independently. Instead, they are deployed by a developer on a public ledger called the Blockchain. This technology makes it possible for cryptocurrencies to exist, enables rapid transactions, and provides for the monitoring of all assets on the blockchain network, among other things.
Smart Contract Applications
Smart contracts can be used or applied in various fields from health care, finance, Government, Business, etc. Below is a few use cases or application of the smart contract;
ā¢ Government Voting/Election: Since smart contracts are built on the blockchain, they are relatively safe for use during elections. This is true because the risk of manipulation is almost impossible on the blockchain. Nobody can edit or tamper with the contract after deployment on the blockchain.
Imagine the use of smart contracts for electoral processes in the near future; this has the potential to boost people's political engagement. It's safe to say people have lost faith in conventional election methods, and also, there will be no need to assemble people in a specific location for an election.
ā¢ Healthcare: Patients' medical/health history can be stored on a smart contract using a private key. A few people can only access the private key for privacy. The receipts of hospital patients can also be stored in a blockchain using the smart contract and be automatically shared with a health insurance company or any authorized body as proof of service.
ā¢ Supply Chain: Traditional supply chains take too long to validate because business paperwork moves from hand to hand, causing delays in the supply chain's flow. Because of the lengthy procedure, there is a higher chance of fraud and loss. Blockchain helps eliminate such risks with smart contracts by giving accessible and rapid digital representations of the parties engaged in the transaction.
ā¢ Financial services: Due to the public nature of the blockchain, transactions on smart contracts can be traced and verified with the hash ID of such transactions. This helps ensure the parties' safety from fraud and loss.
Advantages of Smart Contract
The benefits of using smart contracts are as enormous as the problems of traditional contracts.
1. Backup
Transactions on the blockchain are automatically duplicated, allowing the original data to be retrieved in the event of a loss.
2. Safety
All activities on the smart contract are encrypted, and the data are kept securely with the help of cryptography. This ensures that no data concerning a contract on the blockchain can be lost.
3. Fast Confirmation
One of the disadvantages of the traditional contract is the bureaucratic red-tapism, as transactions have to pass through legal and other processes to be successful. Therefore, smart contracts were introduced to remove third parties and further delays from transactions.
4. Freedom
Because smart contracts do not need brokers or other intermediaries to ratify the agreement, they reduce the possibility of third-party manipulation. Furthermore, the lack of a middleman in smart contracts leads to cost reductions.
5. Precision
The use of smart contracts leads to the removal of mistakes caused by the manual completion of various forms, thereby limiting human error.
6. Affordable
Smart contracts, as opposed to paper-based ones, are far more cost-effective due to their lack of need for intermediaries and their ability to be stored easily.
Disadvantages of Smart Contract
As much as there are numerous advantages to using smart contracts, there are also certain restrictions to these benefits, and some of these drawbacks are listed below.
1. Difficult to Edit
A mistake in coding a smart contract might take a long time and cost a lot of money to fix.
2. Flexibility
For legal firms, logic-based execution might be difficult. The use of phrases like 'good faith,' "reasonable," and 'best efforts,' among others, adds a subjective aspect to contract construction. When the parties desire to form a relational contract rather than a transactional one, this sort of contract is necessary. This renders smart contracts useless in such situations.
3. Third-party involvement
Third-party participation cannot be eliminated, even though smart contracts are designed to do so. Third parties have a different role in smart contracts than in conventional ones. The creation of smart contracts will not need attorneys, but developers will require a legal understanding of the terms.
4. Vague terms
Terms and conditions that aren't clearly defined might make smart contracts less effective at handling them.
In the next few years, it is believed that the blockchain technology will have revolutionized the world. For example, it could lead to financial markets being more secure and transparent while reducing costs through lowering intermediary or broker fees.
This is why it is essential to know the best smart contract platforms on blockchain currently.
1. Zebec
Zebec is a Solana-based continuous settlement protocol. Beginning with Zebec Payroll, Zebec is facilitating composable value transfer. Zebec Safe is a completely customized multi-signature solution built on Solana.
2. Star Atlas
Star Atlas is a global blockchain adventure game built on the Solana network. The game aims to create a metaverse with an expanding economy in which individuals can enjoy complete freedom while earning ATLAS tokens.
3. Mango
Serum-powered Mango Markets is a DeFi derivatives platform that works on the Solana blockchain. Mango's purpose is to combine the convenience and liquidity of centralized exchanges with the decentralized network characteristic of DeFi. Investors who use Mango can profit on open positions, deposits, and collateral.
4. Aave
Aave is a non-custodial, open-source liquidity protocol for generating interest on deposits and borrowing assets. What distinguishes Aave is that it bases its interest rates on the usage rate of the liquidity pool used.
5. Acala
Its main goal is to include DeFi capabilities into the Polkadot ecosystem. This idea is technically built on two protocols, one of which is Homa (which ensures stake liquidity) and the other is Honzol (supporting the collateralized stablecoin).
6. OpenSea
OpenSea is the first and biggest secondary marketplace for NFTs on Ethereum in terms of trade volume.
7. Sandbox
Sandbox is a virtual Metaverse in which users may play, develop, and own property. You may create your own games on your property and charge others to play them. You may also exhibit your NFT collection if you own some land.
8. 1inch
1inch is a platform for aggregating cryptocurrency exchanges. This implies that the dApp searches DEXs for the lowest bitcoin pricing. As a result, it may give traders with a plethora of low-cost entry possibilities while also assisting them in avoiding concerns such as slippage.
Numerous outstanding, second-generation platforms have cropped up recently. It is essential to understand their positive qualities and any weaknesses each present. The future of smart contracts may lie with such solutions. They are all performing well in different areas of the blockchain industry and present unique advantages over traditional systems.
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