Do you know what are the Ethereum smart contracts? As each year brings a new wave of trends and innovations, it’s hard to stay abreast of all worthy tech advancements. Moreover, it is hard to define which of them might bring benefit to you or your business. Think of Augmented Reality or Big Data. A few years ago, we couldn’t imagine that AR would find such an amazing application in the gaming industry. Little did we know that insurance and healthcare companies would be among the first to take advantage of big data. Needless to say that companies that have seen the potential of these technologies earlier than others succeed. And what do you think played a crucial role in their success? Information. They knew what had been coming before it became the next big thing. They pioneered and it helped them succeed.
In light of this, it becomes obvious that the knowledge of the most groundbreaking tech advancements is the key to prosperity. That’s why today the spotlight is on one of the most game-changing technologies out there. It is a blockchain technology and one of its greatest implementations – ethereum smart contracts. Get ready to learn all the ins and outs of this innovative technology. In addition, you will discover unobvious ways in which it can help you reach new frontiers.
What are Ethereum smart contracts?
If you’ve never heard of this technology before, it might be a little challenging to understand its nature right away. However, if you’re somewhat familiar with how the Internet works and know the fundamentals of the blockchain technology, it won’t be hard for you to understand what ethereum is and how exactly it functions. If you need a helping hand, though, read the paragraphs below or just contact us!
You’re likely to know that we need to store all our personal data and private information somewhere (on a server or a cloud). It’s necessary to have an access to it through the Internet at any time. Such large corporations like Amazon, Google, and Facebook own the vast majority of servers that store our information. And it might not look like a problem unless you realize how vulnerable this information really is. One hacker attack on a third-party service and all the information is leaked or gone for good.
How does the blockchain technology work?
So is there a way not to store all the information in one place? Turns out that the answer is yes. Here’s where a blockchain technology comes into play. Most of the people are familiar with it because of Bitcoins. It is a cryptocurrency that is also known as ‘digital gold’. As you’re likely to know, the entire Bitcoin system works on the blockchain. Which is essentially a decentralized system that exists thanks to all permitted parties. Basically, it is a giant spreadsheet duplicated multiple times across a large network of computers. Thus, all the information on a blockchain appears to exist as a shared and permanently reconciled database. The benefit is huge and obvious. First, the data is no longer in one location but exists on millions of computers simultaneously. Another key feature is that blocks hashing and coupling achieve the blockchain immutability.
Until quite recently, a blockchain technology was mostly used to disrupt the traditional banking and PayPal business with Bitcoins. Nowadays, however, the use of blockchain runs far beyond a cryptocurrency.
How does it work?
Ethereum is one of the most recent advancements that have a blockchain technology as a basis. Its goal is to replace the third parties and develop a ‘World Computer’ that would be a decentralized and democratized form of the Internet. Instead of using server companies, people will have their data stored on millions of computers around the world. However, one should understand that a blockchain technology in its current form cannot fully replace traditional servers and software running on them. What it can do is protect the most vulnerable information. For instance, our financial details, personal health records, payment agreements etc.
To business as well as to end users, this will improve security, bring more democracy, and transparency. As well as it will reduce the cost of Internet operations. That’s not to say, however, that Internet operations are going to become completely free, as we would still have to pay miners.
Ethereum in Action: What Are Smart Contracts?
There’s a myriad of reasons why smart contracts are the next big thing in global business. But before discussing them in detail, it makes sense to define what exactly means the term ‘smart contracts’.
Smart contracts are exactly what they sound. Thanks to Ethereum technology, developers can program smart contracts which function as multiple-signature accounts and manage agreements between users. Ethereum smart contracts contain pre-written logic that makes contracts get automatically enforced when it’s clear who won. Smart contracts are able to define all the rules and penalties of a particular agreement and enforce the associated obligations automatically.
The best thing about smart contracts is that there is no party that makes the decision. There’s no intermediary or third party that can potentially influence the process of decision-making. A smart contract just automatically fulfills itself leaving no room for fraud, corruption, or censorship.
Unlike traditional contracts, smart contracts have only one set of trade terms and it comes in code. However, certain external dependencies such as a price of oil or currency fluctuations can be inserted through a mutually agreed feed.
The Benefits of Using Smart Contracts in Business
From all said above, it becomes clear that smart contracts deserve to be considered the next-generation contracts. There are many reasons that encourage us to believe that smart contracts will run the show in global business in the future. So let’s see what benefits your business can potentially get by switching to smart contracts:
In the case of traditional contracts, we have to rely on lawyers, brokers, and other intermediaries in order to confirm our agreement. However, there is no need for a middleman with smart contracts and it eliminates a possibility of manipulations made by a third party.
Backup (Multiple Backup)
Before smart contracts came into play, it had been possible for a bank to lose a client’s savings account. With smart contracts, however, all documents are duplicated multiple times and saved on computers for each and every user of a blockchain. This way, everyone who is a part of the network has your back. One should keep in mind, however, that their information remains safe and private as long as they have a private key in safety. Once it is lost or compromised, the asset gets permanently lost with no recovery option.
Safety of Documents and Information
Immutability is one of the key features of a blockchain. It allows proving to any user that some document, digital asset, value, agreement or any other information is indeed such as it was stored in the database. However one should realize that in its original implementation the whole data is stored publicly accessible to everyone with absolutely no privacy. For some application when either data or code logic needs private additional measures. Such challenge and different solutions are described in this great article from the key author of Ethereum. If the system requires storage of large files either encrypted or not, one of the options is to combine the blockchain with a new generation decentralized file system IPFS, as an example.
It usually takes time to manually process traditional documents (even digital ones). However, smart contracts are nothing like that. They use the code for tasks automation, which saves hours off a number of business operations. Moreover, there’s an assuming adequate compensation, provided for transaction validation.
As there is no need to pay an intermediary, users of smart contracts can save a decent sum of money. Gone are the times when you had to pay a notary to witness and confirm your transaction. Now it’s miners who play the role, so the process appears to be optimized and more cost-effective.
A human factor has always been one of the biggest problems with traditional documents. With smart contracts, however, errors are less likely to occur.
Which Industries Can Benefit the Most from Using Smart Contracts?
Cutting a long story short, smart contracts can help us exchange money, buy or sell properties, operate with shares or anything of value in the most conflict-free way and without the need of paying any third parties. Except for miners, obviously.
The list of industries that can benefit from switching to smart contracts includes but is not limited to the following:
Believe it or not, but smart contracts can improve the current voting system. Not only will they make it possible to ledger-protect each vote, but also hike a low voter turnout. Thanks to smart contracts, such time-consuming procedures as lining up, proving your identity, and completing forms will sink into oblivion. Online voting will become the new norm, and finally, the government will be able to get that Millennial voter. What’s more, the technology can improve the standards of budget collection and allocation. Which is likely to solve the problem of corruption one day.
Management and Communications
The process of general management and communication between partners or employees can be improved with smart contracts. It is no longer necessary to wait for multiple stages of approval process or worry about a lack of transparency. Now, business communication on all levels is believed to improve significantly. Since business logic can now be coded into a blockchain, the process of conflict-solving and disputes resolution can become faster and generally better.
Fintech and Bank Industries
Speaking of the financial segment, smart contracts can help with managing the approval workflows between counterparties and transfer funds automatically. This technology can be used to perform routing, error checking, as well as calculating payout based on a type of a claim or certain policy. Banks, in turn, may use smart contracts for the sake of safer and quicker transfers of funds from one area to another.
Thanks to the ethereum and smart contracts you no longer have to pay the third party for rental-related procedures (miners are not counting). With smart contracts, it’s possible to pay via cryptocurrency and encode a rental contract on the ledger.
Healthcare is yet another industry that can tremendously benefit from using smart contracts. Ethereum makes it possible to encode and store personal health records on the blockchain. Moreover, it provides a secure access only to specific individuals with a private key. Compared to a classic system, protection of sensitive data on a blockchain is improved with authenticity.
According to a recent report made by Deloitte, these days smart contracts are mostly used for trade clearing and settlement, insurance claim processing, coupon payments, personal health tracking and electronic medical records. Also, for voting, peer-to-peer payments, trade finance documentation, and even autonomous electric vehicle charging stations. In light of this, it becomes clear why one of the most up-and-coming on the market out there.
In light of all said above, it becomes clear that smart contracts offer a myriad of opportunities for businesses of all kinds. No wonder why the top companies in healthcare, real estate, and other industries have already incorporated the technology into their business processes. However, since the technology is young and still on the rise, it might be challenging to find tech professionals that specialize in the development of custom blockchain or smart contracts for your pre-ICO, ICO, funds distribution or any other smart contract application. Same as for related non-distributed software that is working on top of a blockchain. To succeed, search for the experts with appropriate expertise only and make sure the details of your task are clear for the hired team. In addition, you can also take a look at our article on how to develop a blockchain-powered app.
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