Making Smart Contracts a Reality with Blockchain Technology

Smart contracts are self-executing contracts containing the terms and conditions of an agreement among peers. The terms and conditions of the agreement are written into code. The smart contract executes on the Ethereum Blockchain’s decentralized platform. The agreements facilitate the exchange of money, shares, property, or any asset.

Now imagine a scenario, but with smart contracts—applications that replicate and execute all the provisions of a standard legal agreement and its associated terms and conditions. When the ship arrives, the cotton is unloaded, and the buyer scans a barcode on each pallet as it passes inspection. As soon as those scans are complete, the data they generate is uploaded to a blockchain, triggering a series of events including filing the customs declarations, paying any necessary duties, transferring ownership from the seller to the buyer, and transferring payments from the buyer to the seller and the carrier. If all conditions of the contract bargained for exchanges are met, the entire process can take about 10 minutes or less.

The latter scenario is already a reality. Although the concept of smart contracts has been around for decades, it’s only thanks to the advent of blockchain—which creates immutable records of each transaction shared by multiple parties—that every provision can be automatically executed and verified along the way. Since smart contracts run in environments in which they are executed exactly as written, they do not require approval at each step as long as pre-established conditions are fulfilled.

How does it work?

A smart contract is an agreement between two people in the form of computer code. They run on the blockchain, so they are stored on a public database and cannot be changed. The transactions that happen in a smart contract are processed by the blockchain, which means they can be sent automatically without a third party.

Smart contracts are automatically executed once the conditions of the agreement are met. This means there is no need for a third party, like a bank, a broker, or a government.

What are Smart Contracts Currently Being Used For?

The possibilities are endless for smart contracts. They are already being used for financial trades and services, insurance, credit authorization, legal processes, and even crowdfunding agreements (ICOs).

Smart contracts are an exciting development that would not be effective without the use of blockchain to ensure that contract terms automatically execute if all parties meet agreed-upon conditions. They have the potential to revolutionize multiple industries, freeing up capital and giving legal departments around the world an opportunity to focus their talents on strategic initiatives and complex contracts and litigation instead of routine contract enforcement that may be open to dispute.

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