Smart contracts are transaction protocols based on blockchain technology. This tool offers many benefits to all parties involved in the contract, ensuring transparency in the most objective way possible.
1.What are smart contracts?
Smart contracts are programs stored on a blockchain that execute when predefined conditions are met.
They are often used to automate the execution of agreements. This allows all participants in the contract to be immediately certain of the outcome without the involvement of any intermediaries or organizations.
Smart contracts also have the ability to automate workflows; they can re-trigger actions when previous conditions are met, creating a cyclical loop.
2.How does it work?
Smart contracts operate by following the "If/when…then…" statement rule. The smart contract then writes the corresponding conditions in code on the blockchain.
A computer network performs actions when the predefined conditions are met and verified. These actions include disbursing funds to the appropriate party, registering a vehicle, granting access, sending notifications or issuing tickets, executing transactions, etc.
The blockchain smart contract then updates when the transaction is complete. This means the transaction cannot be altered, and only authorized parties have the right to view or cancel the results.
Within a smart contract, various necessary rules can be established to satisfy participants and ensure that the task is completed.
To establish terms, participants must define how their transactions and data will be represented on the blockchain, agree on the “if/when…then…” rules governing those transactions, list all possible exceptions, and define a framework for resolving disputes clearly and quickly.
Then, the smart contract is programmed by the developer. Currently, the structure of smart contracts has been somewhat simplified by many organizations providing blockchain services to businesses, creating templates, web interfaces, and various other online tools for business and other purposes.
3.What are the benefits of smart contracts?
First, let's talk about security.
Reliability and transparency: Because there are no intermediaries involved and transaction records are encrypted, information cannot be altered for any personal gain.
Speed, accuracy, and efficiency: When a condition is fully met, the contract is executed immediately. Smart contracts are digital and fully automated; participating parties do not need to handle paperwork, there is no time wasted correcting errors, and it operates based on predetermined conditions and can be signed instantly if all requirements are met.
Protection: Transaction records on the blockchain are encrypted, making them virtually impossible to hack. Furthermore, because each record is linked to the previous and next records on the distributed ledger, a hacker would have to change the entire string of characters to alter a single record, which is very difficult and expensive.
Cost and time savings: Smart contracts eliminate the need for third parties to process transactions. This allows participating parties to save on associated costs and avoid wasted time while maintaining reliability.
4.Applications of smart contracts in current technology.
Blockchain applications in financial real estate.
Through tokenization, smart contracts are promoting ownership as part of an asset. Therefore, it reduces the barrier to entry for many investors, redefining transaction documentation and processes by consolidating blockchain and real estate transactions.
In particular, there have been several successful efforts to tokenize real estate through platforms like RealT and SolidBlock.
Anyone who has bought a house or other real estate is aware of the associated costs and direct impact on the process, such as ownership transfer fees and brokerage fees. With these applications, it is sometimes possible to eliminate these costs without impacting the transaction process.
When a portion of an asset is tokenized, much of the necessary record-keeping can be done through the relevant smart contract, thereby saving time and money for all parties involved.
Applications include games and NFT trading.
The global gaming industry is an ecosystem with unlimited value. The industry continues to grow rapidly, but the way value is created and distributed across the industry may be unfair.
Developers create and publish games, and players pay to participate in and interact with those games. This maintains a one-way value flow, where players spend money to unlock access to in-game assets and game configurations.
In contrast, blockchain technology applied to gaming allows players to grasp the utility and value of in-game purchases, as well as acquire assets more efficiently, quickly, instantly, and with fewer transaction costs.
Blockchain technology in gaming is often driven by non-fungible tokens (NFTs) – unique digital assets representing content, prevalent within games.
NFTs are developed based on smart contracts. These tokens are unique, rare, and non-divisible, facilitating player ownership. Smart contract-based games have the potential to drive widespread adoption and create a fairer, less abusive value model.
Thanks to the deployment of blockchain technology in the gaming industry, players will be able to save in-game purchases, sell them to others, or transfer them to supported related games without regulations or additional costs. Now you can complete transfers in minutes at the lowest cost (no additional costs; these costs are based on network status).
Because NFTs are unique and can be designed to retain value beyond the game they originate from, blockchain-based NFT and DApp games have the potential to expand the gaming economy, reach more people worldwide, and drive the development of new games. Some blockchains with significant game development include Ethereum, TRON, NEO, SOL, etc.
Decentralized finance (DeFi) applications (DApps) represent an effective alternative to traditional financial services. This type of application is becoming increasingly popular due to its reliability, transparency, objectivity, and security based on blockchain technology and smart contracts.
DeFi DApps also provide services to the financial and banking industry, such as lending, savings, trading, and a range of other financial services.
The decentralized business model can bring significant benefits and convenience to both financial institutions and users. With high transparency, 24/7 functionality, and lower costs thanks to the use of smart contracts, DApps have the potential to lower the barrier to entry into the financial services sector for people worldwide, thereby attracting a large number of participants.
DeFi (decentralized finance) projects have generated billions of US dollars in value. This trend is expected to continue as more and more people become familiar with the unique value propositions of this sector.
Users can participate in this new generation of financial services without centralized custody or intermediary fees. Although the DeFi sector is only a few years old, the number of innovative DApps that have provided significant value and convenience to consumers demonstrates the impact of DApps and smart contract support on the financial industry over the years.
Disclaimer: This article is for informational purposes only and provides an overview of the investment project in the cryptocurrency market. Investors and traders should not rely on the information provided here to make investment decisions.