A smart contract is a computer code that simplifies the execution of certain contractual agreements by eliminating the need for mediation. These are contracts that are closely related to blockchain technology, as the technology on which they are created.

Author: Ana Nives Radovic

Smart contracts have been a concept in the realm of computer science for over two decades, but it was not until the advent of blockchain technology that its potential use and widespread adoption came to fruition.

The introduction of smart contracts has opened up a world of new possibilities for the legal industry and beyond, enabling the creation of entirely new types of decentralized applications that are secure, transparent, and autonomous.

Unlike traditional legal contracts, which simply outline the rules and regulations governing an agreement between multiple parties, smart contracts take it one step further by locking in these guidelines within the blockchain itself. By doing so, they can guarantee the transfer of funds in a secure and transparent manner once the conditions specified in the contract are validated.

Essentially, smart contracts are immutable computer programs that reside on a blockchain, with Ethereum being the most popular platform for their implementation. These programs execute a set of predefined instructions that are encoded within them, making them inherently self-executing and self-enforcing.

Although smart contracts have a lot in common with traditional contracts in terms of their underlying rules and conditions, they offer several advantages over their paper-based counterparts. For one, they allow for the encoding of complex, conditional logic that cannot be modified or tampered with once deployed to the blockchain. Additionally, smart contracts offer greater transparency, security, and efficiency compared to traditional contracts, which can be fraught with ambiguity, fraud, and delays.

Application

One of the many possible applications of smart contracts is in the field of delivery services, where they can streamline and simplify the payment process.

During the execution of a smart contract, all validation steps are recorded on the blockchain, providing an immutable record of the transaction. This ensures that all data is transparent and tamper-proof, preventing unauthorized modifications or deletions. Smart contracts can thus provide a secure and efficient way to automate various types of agreements in a variety of industries.

By using a smart contract, a sender can ensure that the payment for the delivery service is made only after the shipment has been successfully delivered, without the need for a traditional contract or intermediary.

The level of complexity of a smart contract can vary, just like any other computer program. A smart contract executes the instructions written in its code, and only performs the intended actions when certain predefined conditions are met. This makes transactions more efficient, transparent, secure, and irreversible. Additionally, smart contracts eliminate the need for a central authority, as the code itself acts as the intermediary between the parties involved.

Rationalization

One of the key benefits of smart contracts is their ability to streamline and rationalize various business processes, such as inventory tracking, dividend payment automation, and personal data control. This not only improves efficiency but also eliminates the need for intermediaries, reducing costs and increasing transparency.

Smart contracts can be applied to a wide range of industries, including finance, healthcare, energy, real estate, media, and public administration. As the Internet of Things (IoT) continues to develop, the demand for smart contracts is expected to increase even further. In practice, the majority of smart contracts are currently used to automate the exchange of value in the form of crypto assets. The accounting entries related to these digital value exchanges are systematically recorded on the blockchain, ensuring that all property transfers are public, predictable, and irrevocable.

Despite the many benefits of smart contracts, several issues still need to be addressed, particularly regarding their legal status and position within the overall contractual relationship. It is important to recognize, however, that smart contracts have the ability to secure an agreement between parties, automate payments, and reduce or even eliminate additional costs. This can have a significant impact on businesses, especially those operating in highly regulated industries, by reducing bureaucracy and increasing operational efficiency.

As the use of smart contracts continues to grow and evolve, it is expected that they will play an increasingly important role in various industries and society as a whole. By providing a secure and efficient way to automate various types of agreements, smart contracts have the potential to transform the way businesses operate and create new opportunities for innovation and growth.