Smart Contracts Explained!

Welcome to Smart Contracts fellow steemians!

Nex here with a new subject to cover this time - something i'm not really sure but I tried my best at gathering info.

One of the best things about the blockchain is that, because it is a decentralized system that exists between all permitted parties, there’s no need to pay intermediaries – the so called middle men - and it saves you time and conflict.

Blockchains are supposed to be faster, cheaper, and more secure than traditional systems, which is why banks and governments are turning to them – in the EU Syrian refugees were given money via Ethereum!

20 years or so ago, Nick Szabo, a legal scholar, and cryptographer, realized that the decentralized ledger could be used for smart contracts, otherwise called self-executing contracts, blockchain contracts, or digital contracts.

In this format, contracts could be converted to computer code, stored and replicated on the system and supervised by the network of computers that run the blockchain.

This would also result in ledger feedback such as transferring money and receiving the product or service – thus ensuring transparency.

So you might ask - what are Smart Contracts?

Smart contracts help you exchange money, property, shares, or anything of value in a transparent, conflict-free way, while avoiding the services of a middleman – which translates to a cheaper service.

The best way to describe smart contracts is to compare the technology to a vending machine.
Ordinarily, you would go to a lawyer or a notary, pay them, and wait while you get the document, right?
With smart contracts, you simply drop a bitcoin into the vending machine (i.e. ledger), and your escrow, driver’s license, or whatever drops into your account.

More so, smart contracts not only define the rules and penalties around an agreement in the same way that a traditional contract does, but also automatically enforce those obligations – that means no human error or acting of ill will.

Vitalik Buterin, the 22-year-old programmer of Ethereum – in case some of you might not know-  explained that in a smart contract approach, an asset or currency is transferred into a program “and the program runs this code and at some point it automatically validates a condition and it automatically determines whether the asset should go to one person or back to the other person, or whether it should be immediately refunded to the person who sent it or some combination thereof.”

In the meantime, the decentralized ledger also stores and replicates the document which gives it a certain security and immutability.

Example – Extracted directly out of Blockgeeks

Suppose you rent an apartment from me. You can do this through the blockchain by paying in cryptocurrency. You get a receipt which is held in our virtual contract; I give you the digital entry key which comes to you by a specified date. If the key doesn’t come on time, the blockchain releases a refund.

If I send the key before the rental date, the function holds it releasing both the fee and key to you and me respectively when the date arrives. The system works on the If-Then premise and is witnessed by hundreds of people, so you can expect a faultless delivery.

If I give you the key, I’m sure to be paid. If you send a certain amount in bitcoins, you receive the key. The document is automatically cancelled after the time, and the code cannot be interfered by either of us without the other knowing, since all participants are simultaneously alerted.

You can use smart contracts for all sort of situations that range from financial derivatives to insurance premiums, breach contracts, property law, credit enforcement, financial services, legal processes and crowd funding agreements.

Here’s How You Can Use Smart Contracts

Jerry Cuomo, vice president for blockchain technologies at IBM, believes smart contracts can be used all across the chain from financial services to healthcare to insurance. Here are some examples:

Government

Insiders vouch that it is extremely hard for our voting system to be rigged, but nonetheless, smart contracts would allay all concerns by providing an infinitely more secure system. Ledger-protected votes would need to be decoded and require excessive computing power to access.
No one has that much computing power, thus making it extremely secure and secondly, smart contracts could hike low voter turnout.
Much of the inertia comes from a fumbling system that includes lining up, showing your identity, and completing forms.
With smart contracts, volunteers can transfer voting online and thus everyone will be able to vote without leaving their own home!

Management

The blockchain not only provides a single ledger as source of trust, but also avoids possible snarls in communication and workflow because of its accuracy, transparency, and automated system.
Ordinarily, business operations have to endure a back-and forth, while waiting for approvals and for internal or external issues to sort themselves out.
A blockchain ledger streamlines this. It also cuts out discrepancies that typically occur with independent processing and that may lead to costly lawsuits and settlement delays – no more having to ask your superior, and their superior to their superior… and so on.

Supply Chain

Smart contracts work on the If-Then premise so as Jeff Garzik’s said,

“UPS can execute contracts that say, ‘If I receive cash on delivery at this location in a developing, emerging market, then this other [product], many, many links up the supply chain, will trigger a supplier creating a new item since the existing item was just delivered in that developing market.’”
All too often, supply chains are hampered by paper-based systems, where forms have to pass through numerous channels for approval, which increases exposure to loss and fraud. The blockchain nullifies this by providing a secure, accessible digital version to all parties on the chain and automates tasks and payment.

Automobile

Think of a future where everything is automated – your house, your car, even most of the day to day boring tasks.
One example is the self-autonomous or self-parking vehicles, where smart contracts could put into play a sort of ‘oracle’ that could detect who was at fault in a crash; the sensor or the driver, as well as countless other variables.
Using smart contracts, an automobile insurance company could charge rates differently based on where, and under which, conditions customers are operating their vehicles.

Healthcare
Personal health records could be encoded and stored on the blockchain with a private key which would grant access only to specific individuals.
The same strategy could be used to ensure that research is conducted via HIPAA laws (in a secure and confidential way).
Receipts of surgeries could be stored on a blockchain and automatically sent to insurance providers as proof-of-delivery.
The ledger, too, could be used for general health care management, such as supervising drugs, regulation compliance, testing results, and managing healthcare supplies.


Smart Contracts are Awesome!