In recent years, blockchain technology has emerged as a transformative force across various industries. Smart contracts are a moving front which show incredible potential when incorporated into existing processes for revolutionary solutions. These self-executing agreements, encoded within blockchain networks, have the potential to revolutionise the way we conduct business, govern processes, and build trust in a digital world. In this article, we will explain the basics about smart contracts, how they interact with our current world and what to expect in coming years.
The estimated 2022 market size for smart contracts was USD 1750 Million and is expected to grow up to USD 9850 Million in 2023 (Zion Market Research, 2023).
What is a Smart Contract?
A smart contract is a computer program that automatically enforces and executes the terms of an agreement without the need for intermediaries. Built on blockchain technology, smart contracts utilise the decentralized and immutable nature of the distributed ledger to ensure transparency, security, and efficiency in transactions. Rather than relying on traditional legal frameworks, smart contracts employ code to govern and automate interactions between parties, eliminating the need for manual enforcement and reducing the risk of fraud or manipulation.
The smart contract becomes an immutable piece of code that self-executes when specific trigger conditions are met. The decentralised nature of blockchain ensures that all parties involved have access to a shared, transparent and tamper-proof record of the contract's execution. The execution results are recorded on the blockchain, providing an auditable trail of actions. By automating contract execution, smart contracts streamline processes, reduce costs, and enhance trust between participants.
Intermediaries and Their Roles with Smart Contracts
Some view smart contacts as the replacement of intermediaries such as lawyers and real estate agents, but that is not how we envision their use. Rather than viewing smart contracts and intermediaries as competing entities, it is essential to recognise the synergistic potential. Smart contracts can augment the work of intermediaries by automating routine and repetitive tasks, reducing the administrative burden, and ensuring accurate and efficient execution. This will allow intermediaries to focus on providing higher-level advisory services, leveraging their expertise to tailor contracts to the specific needs of their clients.
Smart contracts, combined with the expertise of intermediaries, empower parties within a contract to have full trust in its execution while benefiting from the knowledge and experience of professionals. This collaborative approach not only enhances efficiency but also offers an additional layer of protection and legal assurance onto the direct parties in the agreement.
Applications of Smart Contracts
An area where smart contracts are being extensively used is in decentralised finance (DeFi). DeFi platforms leverage smart contracts to enable individuals to access financial services in an automated and trustworthy manner. For instance, lending and borrowing protocols, such as Compound and Aave, utilize smart contracts to automate the lending process, determine interest rates, and enforce repayment conditions. All allowing users to securely lend their assets and earn interest without relying on traditional financial institutions.
It is important to note that the use of Smart Contracts goes beyond DeFi, and it can be incorporated into other business processes. Below are 3 uses for smart contracts which you can incorporate into your organisation;
1. Supply Chain Management
The use of smart contracts is currently transforming supply chain management and will continue to do so in the future. It is enhancing supply chain management through an increase in transparency, traceability, and efficiency. They can automate and validate every step of the supply chain, from procurement and manufacturing to logistics and delivery.
Currently smart contracts are supporting supply chain processes, by tracking and recording transactions on the blockchain. This enables real-time visibility into the supply chain, mitigating the risks of counterfeit products, improving accountability, and ensuring ethical sourcing. However, in theory, a smart contract can automatically trigger the payment to a supplier once a delivery is confirmed, which can eliminate delays and reduce the need for reconciliation between parties.
2. Education and Credentials
There are promising solutions in the realm of education and credential verification. With the rise of online learning and digital certificates, there is an increasing need for secure and tamper-proof verification systems. Smart contracts can be used to issue, verify, and share educational credentials, ensuring their integrity and immutability. By storing certificates and diplomas on a blockchain, educational institutions, employers, and individuals can easily validate the authenticity of qualifications, simplifying the hiring process and reducing the potential for fraud.
3. Business and Legal Agreements
Traditional business and legal agreements are often complex, time-consuming, and prone to human error. Smart contracts can streamline these processes by automating the execution and enforcement of contractual obligations. For example, a smart contract can automatically release payment to a contractor upon completion of predefined metrics. By leveraging self-executing code, smart contracts can help resolve disputes through predefined mechanisms, reducing legal costs and expediting resolution times.
Challenges
The complex technical base and immutable nature of smart contracts can prove to be a double edge sword. We may need to face some challenges when it comes to using Smart Contracts. Do we need to have the knowledge of programming languages such as Solidity to create a smart contract? How do we correctly translate contracts into code? How can we reduce the security risks, bugs, or incorrect terms that may be exploited to harm the parties involved.
Additionally, if a contract were to run with erred terms, previous users have discussed the difficulty they faced when wanting to return assets or “resolve” the contract. Once a transaction has been recorded into blockchain, it will not be erased.
Blockchain experts have highlighted that the resolution of these issues is through intense care to the building process, as well as having a foundational knowledge in how smart contracts work. As smart contracts continue to develop, we believe that platforms that create and use smart contracts, will become more user friendly by incorporating safety checkpoints before their use. This can be features such as double confirmation screens, consulting services for legal purposes or using reliable code templates instead of having to code from the ground up.
Smart contracts have the potential to revolutionise numerous industries by enabling secure, transparent, and efficient digital interactions. Through their automated execution, elimination of intermediaries, and immutability, smart contracts streamline processes, enhance trust, and unlock new possibilities for innovation. As blockchain technology continues to mature, the full potential of smart contracts in supply chain management, education, business, and beyond will undoubtedly be realised, shaping a future where efficiency and trust are always ensured.
Meikai recognises the current impact and potential uses smart contracts have in enabling transformative processes towards innovation. By understanding and harnessing the power of smart contracts, you can position yourself and your business for success in this disruptive era. Dive deeper into the world of blockchain and educate yourself about its extensive applications by tuning into our continuing blog series and the panel our Director Adam Rawlings will be speaking on, in this week's Blockchain Week.
Meikai Group
Meikai is a Professional Services Consultancy dedicated to facilitating and solving capability problems and challenges for our clients. Meikai specialises in the provision of engineering, project management and program delivery services to support the implementation of emerging and disruptive technology within the ICT, simulation, and training domains.
Meikai holds a R&D/Futures branch, that looks to explore emerging technology. This ensures we foster cutting edge thinking, skills and competence in our workforce, to continue to providing value and quality to our clients. Meikai knows that research into Blockchain, Web 3.0 and NFTs is essential to building an innovative future.
Authors
Adam Rawlings – Director of Meikai
Adam is a Systems Engineer who is dedicated to supporting forward thinking government officials deliver complex technology change. He has spent the last decade supporting Defence to implement transformational change in the way it uses simulation as a disruptive technology. His qualifications and experience in engineering, education, capability development, leadership and stakeholder management provide him the tools in his belt to progress seemingly impossible programs.
Milica Gallardo Petkovich – Resident Data Scientist
Milica is Meikai’s resident data scientist who is dedicated to researching emerging technologies to provide market insight. She is currently pursuing her Master's in Data Science from the University of Canberra. Having received her Bachelor’s in Financial and Global Economics from Rutgers University, Milica’s international education brings in a global perspective to Meikai.
References
Ambolis, Diana. “Top 10 Most Popular Smart Contracts Security Challenges.” Blockchain Magazine, 21 June 2023, blockchainmagazine.net/top-10-most-popular-smart-contracts-security-challenges/.
Balaban, David. “Navigating the Security Challenges of Smart Contracts.” Forbes, 13 Feb. 2023, www.forbes.com/sites/davidbalaban/2023/02/11/navigating-the-security-challenges-of-smart-contracts/?sh=77cbd4674992.
Sinha, Ashish, et al. “Smart Contracts Could Improve Efficiency and Transparency in Financial Transactions.” Edited by Dana Tong, S&P Global, 4 Oct. 2022, www.spglobal.com/en/research-insights/featured/special-editorial/smart-contracts-could-improve-efficiency-and-transparency-in-financial-transactions.
“Smart Contracts: An Overview of the Future of Transactions.” ZebPay, 10 May 2023, zebpay.com/au/blog/smart-contracts-an-overview-of-the-future-of-transactions.
Security Pilgrim. “5 Use Cases of Smart Contracts: Part 1.” Security Pilgrim, 29 Jan. 2023, securitypilgrim.com/5-uses-of-smart-contracts/.
“What Are Smart Contracts on Blockchain?” IBM, www.ibm.com/topics/smart-contracts. Accessed 10 June 2023.
Zion Market Research. “Smart Contracts Market Size, Industry Shares, Growth, Demand, Application.” Zion Market Research, 3 Mar. 2023, www.zionmarketresearch.com/report/smart-contracts-market.
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