Potential of smart contracts on blockchain

Smart Contracts: Defined
Although the term has always been considered coined by and a part of blockchain technology, the term Smart Contracts was coined, some 20 years ago, by a cryptographer named Nick Szabo. The purpose of coinage was to introduce “highly evolved” practices of contract law and related business practices in, and in conjunction with the design of electronic commerce protocols between strangers on the Internet.

In blockchain technology however, a Smart Contract is essentially a computer protocol that can self-execute, self-enforce, self-verify, and self-constraint during the performance of an automated contract. Though rapidly evolving, classic smart contract implementation examples include the ICOs and Crypto Kitties.

Aside from its legal impact and perhaps a replacement with legal contracts, smart contracts can certainly lessen the burden and the complexity of writing a new contract. Instead one can include these as terms of a smart contract between two parties automatically.

In additional to being executable codes that run on top of the blockchain to facilitate, execute, and enforce an agreement between untrustworthy parties without the involvement of a trusted third-party, smart contracts have certain advantages over traditional contracts:

Automated Certainty
Since the smart contracts are implemented by computer codes, there is no room for any ambiguous natural language as used in traditional contracts. Thus, smart contracts give blockchain networks, the automation and the ability to convert paper contracts into digital contracts. When compared to traditional contracts, smart contracts enable users to codify their agreements and trust relations by providing automated transactions without the supervision of a central authority.

Speed and Direct communication with the clients. Smart contracts eliminate the need for mediators and allow for clear, transparent, direct relationships with clients.Cost
The operating and clerical costs associated with the performance of smart contracts are low as there is almost nil human involvement at the performance stage.

Immutable
A smart contract cannot be tampered with or broken.

With strong security and technological advantages, smart contracts have many advantages that traditional legal contracts lack. For transactions that involve purchase or exchange of goods, services and rights, especially when frequent transactions occur among a network of parties, smart contracts and the automation and security advantages they provide are well suited, especially when identical or similar contracts between parties occur and manual tasks are performed by counterparties for each transaction.

This implies massive application in many financial services transactions such as, simplifying automatic dividend payments, stock splits and cryptographic signatures on stock certificates and for streamlining over-the-counter agreements.

These advantages further shine with not only the across the board security, but cost saving when applied to many supply chain, manufacturing and retail transactions. Although many people still consider the technology to still be in its infancy, industry titans like Walmart and IBM have brought them into their tech stacks to solve multiple automation challenges in use cases of smart contracts today beyond the transfer of cryptocurrency and recording/ changing ownership of land or other assets.

One of the most dramatic shifts that can occur with the use of the Smart contracts technology might be in governance of the major cities globally. It is important to note that 90% of urbanization occurs in developing countries, and most of it is near hazard-prone areas, in informal and unplanned settlements. This sets the stage for large-scale and systemic fraud and abuse.

Smart contracts can bring the kind of transparency, accountability, and public exposure that had never been possible before. Blockchain networks and smart contracts come equipped with local governance solutions from the provenance of private property and title records, and recording private business transactions from business agreements, licenses, registration, and intellectual property registration, to personal credentials like passport, visa, driver’s license, and birth records that are securely stored in blockchain systems.

With the secure and proper management of decentralized data, the ability to self-execute, self-enforce, self-verify, and self-constraint during the performance of an automated contract, smart contracts provide an ideal step forward for embedding it in every process that requires automation without including a third party to ensuring compliance by the two sides to the term of the contract or function being performed.