Blockchain has emerged as a game-changing technology, disrupting numerous industries by providing a decentralized and safe solution for making transactions. One of the most common uses of blockchain is implementing smart contracts. But what are they, and how do they work? First of all, smart contracts have everything to do with Ethereum, the 2nd leading digital asset in the crypto market which you can buy on the Binance platform. Ethereum was also the one to bring the concept of automation to life and shape the future of blockchain technology.
To be fair, trying to make sense of blockchain and all its related aspects can feel like an attempt to solve a Rubik’s cube in a room with no light – it’s truly daunting. If this concept is too complicated for you, we’re here to shine a light on smart contracts to help you grasp everything from how it functions to its benefits and the industries making the most of this new and appealing tech advancement.
Breaking Down the Concept of Smart Contracts
If you are familiar with the blockchain space, you may have heard about smart contracts before. But what are they, really? If you’re associating them with paper contracts – but smarter- you’re not wrong. Simply put, Ethereum smart contracts run on the Ethereum blockchain and are self-executing. This means that the terms of the agreement are written into code, executing automatically once specific conditions have been met. Smart contracts not only eliminate the need for an intermediary, but they also leave no room for misinterpretation. Since smart contracts automate contract execution, they save time and reduce the risk of human mistakes, making them ideal for different industries, including supply chain management, banking, and real estate.
Some examples of Ethereum smart contracts include:
- Decentralized Autonomous Organizations (DAOs). As the name suggests, these are companies run by smart contracts, operating based on rules written into the contract.
- Decentralized Exchanges (DEXes). They are platforms that allow you to trade digital assets without requiring an intermediary.The smart contract is like a trusty referee that ensures everyone plays fair.
- Initial Coin Offerings (ICOs). You can think of ICOs as fundraisers – except that you don’t sell car washes or cookies but cryptocurrencies. The smart contract’s role is to manage the sale to ensure all parties get their fair share.
The Incredible Advantages of Ethereum Smart Contracts
Ethereum smart contracts provide numerous benefits to individuals and businesses alike. They decrease transaction costs while boosting efficiency, as an intermediary is no longer needed. The smart contract does the entire job, acting like an efficient personal assistant who doesn’t make any errors. Due to their self-executing nature, smart contracts ensure that the agreement terms are enforced automatically, boosting transaction transparency and security.
One of smart contracts’ highlights is the element of trust. Since they ensure prompt execution of transactions based on specified conditions, the possibilities for error, manipulation or human bias are significantly lower.
More than 70% of executives see smart contracts as an innovative tool that will shape the future of business. Moreover, the market for DeFi apps built on the Ethereum blockchain has risen exponentially in only a few years, showing the potential of smart contracts to revolutionize how companies operate.
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Sectors That Are Making the Most of Ethereum Smart Contracts
Ethereum smart contracts are used in different industries, including supply chain, real estate, gaming, FinTech, banking, etc. Smart contracts offer efficient solutions to these businesses, allowing them to operate as efficiently as possible. For instance, smart contracts streamline payroll processing in the HR sector, resulting in accurate and timely salary disbursement according to predefined conditions, including company policies and work hours. The technology of smart contracts can also benefit the recruitment process by encoding the terms of employment offers, thus resulting in transparent and seamless job acceptance processes.
Healthcare is another sector where smart contracts are making their mark. By streamlining patient data management, smart contracts allow authorized healthcare providers to access essential information safely and promptly. Healthcare gains enormously from including blockchain smart contracts, and one of the most notable benefits is the potential to revolutionize clinical trial conduct. This is achieved by recording trial data safely and ensuring the results’ integrity and transparency.
The gaming industry is also going through a transformation due to smart contracts that enhance players’ experiences and enable more autonomy by providing ownership of in-game assets represented by NFTs (non-fungible tokens). Smart contracts technology encourages fair play through the enforcement of game rules and governance of randomized events in an auditable and transparent way. Moreover, they enable play-to-earn models, which are an innovative monetization tool. Through their programmable nature, smart contracts blend digital activities with visible economic perks, automating the distribution of real-life rewards related to in-game actions.
Are There Any Limitations in Adopting Smart Contracts?
As much as we’d like to say smart contracts are perfect, that’s far from true. Although understanding how Ethereum smart contracts work unlocks many benefits, discussing the limitations is also imperative. Smart contracts are just like a coin – they have two different sides, and one of them is not so bright. Firstly, immutability is one of smart contracts’ main characteristics, meaning that once you create a contract, it is impossible to change it in any way. It’s like writing words in wet cement – they remain there forever. Well, the same applies to smart contracts, potentially representing a problem if conditions change or an error is made. Another limitation of smart contracts is associated with the legal framework. There are still many locations around the world where smart contracts’ legality is still ambiguous. It’s like exploring an unknown territory without any ideas of what could happen along the way.
Moreover, the issue of privacy is also major. Think of it as living in a house that has glass walls – although it may look great, everyone can see inside, invading your privacy. And no, we aren’t talking metaphorically – your privacy is actually compromised due to Ethereum smart contracts transparency. Although it is perceived as a good thing -which it is, as it enhances trust – transparency allows all network users to see what you’re doing, which is less than ideal.
Looking Towards the Future
As reports show, the global smart contract market will reach $1.4 billion two years from now, an increase of 25.2% from 2020. There’s no doubt that Ethereum smart contracts hold great potential in the future, so we can expect to see further adoption, expansion of DApps, emergence of new use cases, and so on. Overall, we can expect Ethereum smart contracts to experience further development in the years to come.