The development of smart contracts, from its conceptualization sometime in the 1990s by Nick Szabo, who coined the term, to its actual application in the Ethereum platform in 2013 as an innovation branching from the development of blockchain technology, has revolutionized how traditional contracts work. Although some may argue that these “smart contracts” are misnomers for coded programs designed to simply enforce a contract that has been agreed upon, others have acknowledged how a smart contract functions both as the contract itself and the enforcing body. While there may be an ongoing debate on that matter, our attention is of more use on the practical applications of this technology.
Mainly, what can a smart contract do?
Its function is easily related to what it is – a self-enforcing agreement. A smart contract is capable of putting an agreed upon action into motion once the set of terms and conditions are met. This makes transactions or any agreement more efficient and less costly since it removes the need for a third party that would be tasked with the responsibility to facilitate the transaction once everything is ready.
Through the use of the decentralized ledger system in blockchain technology, smart contracts are able to secure transactions. Traditionally, when you conduct a transaction, there is a need to place your trust and a good amount of faith on your lawyer or the company which acts as an intermediary between you and the other party in your agreement. By removing the need for this intermediary, a direct transaction can be done. More so with the use of technology, which has only proven to make everything faster, easier and, overall, more efficient.
Understanding how smart contracts function can help you understand how it can be applied in these situations:
Anyone who has experience claiming insurance, whether it be health, car or any other type of insurance, would definitely not define the current system as being efficient and fast. Some would even question the reliability of some companies when it comes to providing this service. The current process involves filing a claim to your insurance by providing evidence to show proof of the accident or the need for the funds. These documents will then need to be assessed and validated before being sent off to whoever handles the finances in the company. Any cash coming out of the banks would also then require approval. This long process has been placed to prevent insurance frauds and, although serving its function to protect the company from unnecessary losses, is unable to provide the best to those that avail of their services.
Now, let’s create an insurance provider that applies the use of smart contracts to verify insurance claims. Those seeking help only need to present the necessary documents which will be verified by the code itself. There is no longer a need for the prolonged process to retrieve the needed funds. This would cut down the weeks of waiting, or sometimes even months in some areas, to a few days or even a few hours, thus, providing a speedy and secure system to the customers while still securing the company’s assets. This would also minimize costs since there would not be a need for a large staff to process the requests.
Employers are burdened with the need to monitor, account and conduct the necessary transaction to provide their employees with their earned wages. Although some employers rely on an accounting department, another organization or an application to keep track of the hours worked, projects accomplished and relate this to how much their people earn, there may be chances for error, fraud or other issues when relying on a third party to handle these finances.
A smart contract could easily minimize costs and increase efficiency. Terms could be set wherein the number of hours and the work to be done would be the requirements for a certain amount to be sent directly to their employees. Overall, making the process much easier. Other factors such as how tardies and absences will be deducted, withholding taxes, and even benefits could be included in the contract. Despite the need to process all this data, verification of the requirements and other conditions set could be done almost instantaneously which would then automatically process the money transfers.
Many new inventors have earned their big breaks through a popular thing called crowdfunding. This is when people with a new idea or invention presents their idea to the public by posting it online and asking for funds from people willing to either invest in the project or purchase the new product. How this works is that the proponents place a goal for the necessary funds and also a deadline for when the amount should be reached. The problem with this is that some projects are unable to reach the needed funds and then there is a need to return the cash to the donors.
However, expenses in the transferring of the money from a donor to the proponents and then back would already deduct quite an amount on the cash given. There would also be a need for a high level of trust in the project heads to return the money back if the goal is not reached. However, by using a smart contract and its ability to conduct a decentralized exchange to hold the money until the required amount is reached would provide security to the future investor. This would also avoid the hassle of having to manually send back the funds when plans are not able to go through.
Horse races, dog races, or any kind of sport or event where a large number of individuals place their bets on their expected winners would require a mediator to hold the money before the results. However, there are always risks when placing your trust in these intermediaries. On the large-scale betting arenas, these companies hold up to millions of dollars and are responsible for distributing each person’s winnings after the game. This is a tedious task which can only be accomplished by setting up multiple tellers who take in the individual data and provide a ticket or card by which people can then claim their wins or to throw in the trash when they end up losing.
This system has been in use for many years and although there is nothing wrong with how it is today, there is a great potential for improvement. Currently, Bitcoin has been used in placing sports bets due to its many advantageous properties. By placing smart contracts, anyone willing to place a bet could easily and securely link their crypto wallets to the code and use it to place their bets. They could gain their wins almost instantaneously after the results are in and would also be able to avoid the hassle of having to claim the cash in person.
RENTAL OR MORTGAGE PAYMENTS
Having a place to live is a basic human necessity. However, with the rising prices in real estate and the competition in the market, most homes are either bought through loans and mortgage or are rented. Whichever option you choose, you are always met with the same need – Monthly payments.
Although the methods for paying these monthly dues are convenient and efficient, such as enabling a monthly bank transfer, using your credit card, or providing post-dated checks to cover the costs, sending payments is no longer a hassle. However, there are other living costs that should be deducted from the monthly payments, such as home repairs and maintenance. The average homeowner may be unable to get refunds for whenever they spend on the property. A way to improve the transactions between these two parties is through the incorporation of a smart contract to enable easy transfers upon conditioned requests which could then be assessed and verified by the system. Any terms and conditions could be prepared beforehand and then be applied almost instantaneously in those predetermined situations.
Kim Hermoso is a content writer at Cryptoversal.com. Her articles are mostly guides and feature pieces on all things related to cryptocurrency, such as blockchain technology and smart contracts.