How Smart Contracts can impact industries
Smart Contracts are a set of promises that are defined in code and a routine for their implementation. Although the term and theory was coined by Nick Szabo in 1996, it is only after ethereum, the second most popular blockchain project popularised it that there is real implementation being seen today.
There is a beautiful Video on 19 Industries The Blockchain Will Disrupt
Certain aspects of a contract can be coded on a blockchain and whenever these conditions are met, the contract is executed and an irreversible entry is made in the ledger on a blockchain. It works very much like an escrow, but let us take a real life example of how Smart Contracts would redefine a transaction in the real estate industry.
Smart Contracts in real estate industry
Buying and selling of property is currently done offline and is a lengthy process which often involves a host of middlemen. Once real estate records are digitised, all the property's details and owner's details will be available on a secure blockchain that would most likely be maintained by a government authority. Now everyone can trade on this blockchain by creating their own Smart Contracts.
For example, if I own a house with two of my brothers, we get a key to that asset on the blockchain. Now if we want to sell this, we can set up a Smart Contract to say that any serious buyer must first deposit five per cent of the property price and will then be allowed to see the details of ownership (which are private till then), and then they have 48 hours to complete the purchase by depositing the remaining amount. If they fail to do that, their five per cent is refunded and the property goes up for sale again. If the sale goes through, I and two brothers get our share of token and the blockchain now has updated ownership details.
These records will be irreversible or immutable and linked to each other so that the next buyer could see details of all previous purchases and ensure the dealing is transparent and quick.
This is how it works even now. But all of this involves a lot of paper work, too many middlemen, and a lot of time is wasted in back and forth.
Also, ownership paper needs to be verified manually from local land records and a physical signature could be easily faked. Although this was a simple example, in real life, Smart Contracts could be tied to different “rules” and a complex governmental scenario can be executed by machine or code rather than human intervention at every level.
A scenario where a house owner passes away, a Transfer-On-Death code is executed in case a nominee exists or if there isn’t one, a court ruling that defines a successor or an heir. It is still early but we can visualise how various systems work in conjunction – very much like different departments in government or a private company – without any need for manual intervention and with complete transparency.