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Blockchain Smart Contracts and Their Use Cases

Blockchain Smart Contracts and Their Use Cases
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Ethereum is the second-largest cryptocurrency and is a platform allowing blockchain apps to be built on it. To understand the nature of Ethereum blockchain, one must understand the concept of “smart contracts”.

What is a smart contract?

Invented in 1994, a smart contract is a digital contract stored on the blockchain and executed automatically when specific conditions are fulfilled. It entirely removes the requirement of intermediaries such as banks and other financial institutions. Note that the idea of Smart contracts was invented in 1994 by Nick Szabo but was introduced by Ethereum in a working form.

Keep in mind that a smart contract is actually an agreement between two parties and is mere in the form of computer code. Blockchain process the transactions in smart contracts, and hence, it is entirely decentralized and trustless.

Here’s how a smart contract work.

The working of a smart contract is not much complicated. It involves a series of different conditional statements describing the possible scenarios of a transaction.

First of all, the contractual parties determine the terms of the contract and then the terms are translated into a computer code describing the possible future transactions. This code is stored in the blockchain and gets replicated among the participants. The code is then executed by all the computers in the blockchain network.

The transaction is executed once verified by all the participants of the network. 

Use cases of smart contracts:

Smart contracts hold many benefits because of their autonomous, trustless and secured nature. Both the seller and the buyer can create a smart contract through which the deal can be automated once the buyer pays the amount to the seller. Let's discuss the top 5 uses cases of a smart contract:

  1. Individual identity- It is one of the most crucial use cases of a smart contract because the identity is an asset of an individual. In other words, a digital identity can open up many opportunities for a person if used correctly.

When we connect to different services on the internet, we often unknowingly share our identity with those companies. But, with smart contracts, we do not really need to share the true identity to verify the transactions, which is an essential aspect of smart contracts.

  1. Clinical Trials- Clinical trials often require sharing the data between different institutions. Cross-institutional visibility can be improved with the help of smart contracts because it can enable automation and privacy preservation.
  2. Supply chain management- This is indeed an excellent use case of blockchain smart contracts because smart contracts can manifold improve the supply chain. With smart contracts, we can track the items within the chain with absolute transparency. Also, the use of smart contracts can trace thefts and frauds.
  3. Records of financial data- Smart contracts can provide a way to record financial data accurately, and data management becomes more effortless. It can further result in reduced costs for the organization.
  4. Cross border payments- Smart contracts hold the ability to revolutionize cross border payments and trading. It can drastically improve the liquidity of the assets.

Closing thoughts

Smart contracts provide us with the required automation and decentralization, which makes them essential for the economy. Apart from the above-mentioned use cases, these can be useful in many ways, including trading activities, storage of records, insurance, governmental operations and many more such activities.

We can entirely avoid the requirement of a middle person if the smart contracts are used through absolute potential.