Smart contracts are fast gaining popularity. Several industry leaders are mulling use cases of Blockchain-based smart contracts to handle different types of complex transactions. Businesses are leveraging the benefits of smart contracts in collaborations to enforce specific agreements, with fixed outcomes, without the involvement of intermediaries.
Definition of Smart Contracts
Nick Szabo, an American computer scientist and the inventor of virtual currency Bit Gold, has defined smart contracts as computerized transaction protocols, which execute the terms of a contract.
Smart contracts are lines of code, including the terms of the agreement between the buyer and the seller. They execute tasks automatically when predetermined conditions are met. In other words, they are programs that run in a way that the developers set them up to run.
They eliminate the need of involvement of a central authority, legal system, or external enforcement mechanism. Smart contracts carry out traceable, transparent, and irreversible transactions among disparate and anonymous parties.
Smart contracts are also called digital contracts, self-executing contracts, or Blockchain contracts. Blockchains that offer the process of smart contracts include Ethereum, Bitcoin, NXT, and Side Chains.
Smart contracts have numerous applications. Let’s take a look at some of its popular uses.
The Use Cases of Smart Contracts
Smart contracts help in exchanging currency, shares, derivatives, property, or anything of value.
- Supply Chain
Smart contracts nullify theft, loss, and fraud, and make supply chains secure and transparent. They provide real-time visibility and record every step in the supply chain. All supply chain players like companies, individuals, facilities, and products must attest themselves with smart contracts.
- Real Estate
Powered by smart contracts, a centralized registry of the property allows the buying and selling of real estate without intermediaries and to pass ownership rights.
- Digital Identity
With smart contracts, systematically store all the data of digital assets and impose restrictions on their disclosure. Instantly complete the KYC verification process with the party to the smart contract by disclosing only the relevant information, and nothing additional.
- Health Care
Encode and store personal health records with smart contracts and grant access only to specific individuals such as insurance providers. Additionally, ensure secure and confidential research, supervise drugs, track health reports, and manage healthcare supplies.
- Banking and financial services
Transfer funds in a fast and inexpensive way without the involvement of intermediaries and without paying fees. Since smart contracts eliminate the risk of fraud, they are applied for international banking transactions and other financial services.
Avoid processing delays and automate insurance policies by recording them on Blockchains with smart contracts. Get the insurance claim processed without human intervention when the requirements meet.
- Intellectual Property Rights
Crack a whip on piracy and authorship violations by making a transparent registry on a Blockchain. Earn royalty on intellectual property by automatically triggering the smart contract when someone uses it.
After recognizing several uses of smart contracts, another feature that could set them apart is their ability for up-gradation and modification. However, this feature raises another question.
Are Smart Contracts in Blockchains Reversible?
Smart contracts are immutable, like any other Blockchain transaction. After execution, a contract becomes irreversible. The tamper-proof nature of smart contracts is one of the reasons for their popularity.
However, with the rising need for enhancement and correction in the existing smart contracts, some ways to update them have turned up.
- Intermediary smart contract
Create an intermediary contract to modify the code of the original smart contract. It should hold the address of the active smart contract so that by using the function DELEGATE CALL, all the transactions get redirected to the active version. Now, the contract will manage the same address and storage but will forward all the transactions to an address stored in a variable.
- A new version of the smart contract
Create and insert a new version of the smart contract, after removing all the information from the old version of the contract. Later update the address for the users to see.
- Put logic code in a library
Call the address from the libraries in Solidity on Ethereum using the CALL CODE feature. The user data will exist between the two versions. However, the Application Binary Interface (ABI) of the logic contract must remain the same over time.
To understand this point better, let’s first understand, what is solidity in Ethereum?
Solidity in Ethereum
Smart contracts have the potential to change the world. Players around the world are adjusting, modifying, and upgrading the Blockchain technology at a very fast pace. It will highly depend on the service providers whether they embed transparency, trust, and accountability in their smart contract design or not.