It’s widely known by now that the main attractive of blockchain technologies is the decentralization they offer to traditional transactions. No longer would financial organizations have to intervene in buy-sell transactions because the system is safe enough to sustain itself, and maintain all the important information about the users, balances and transactions secure from tampering or alterations.
All of this is possible thanks to the way the blocks within the chain are constructed: Each block contains transaction information, encrypted and described in a hash (if the information contained is altered, the hash is also changed). Also, each block contains the hash of the previous block, which makes it nearly impossible to tamper the chain, as one would need to alter the hashes of every single block for it to match.
These attributes, decentralization and security, are already being used in different markets as base for new, innovative services. Healthcare providers and insurance companies are already joining the wave by using blockchain to protect their customers’ data and history, but the current trending application of this technology are “Smart contracts”.
What are smart contracts?
Smart contracts work exactly like real-life contracts, as they specify the terms that need to be met for a certain transaction to be completed. Unlike the rest of transactions stored in the blockchain (which only include a sender, a receiver and the transferred amount), smart contracts use the blockchain’s language to include verification functions and conditions to be fulfilled before the transaction completes.
A quick example can be made with a regular crowdfunded project. If a smart contract is correctly written and implemented, the backers can make their contribution, and it would be stored within the contract until it reaches the project’s goal. If the goal is met, the contract directly transfers the collected funds to the project’s team, and if it fails to reach the goal, the contributions are instantly refunded to each backer.
Of course, this is already done by platforms like Kickstarter and GoFundMe, but the mere presence of this third-parties implies that both the backers and the project starters need to trust the platform for the funds to be correctly handled in case of reaching the goal or if a refund is necessary.
With smart contracts, the need for these third-parties is completely eliminated, reinforcing the idea of decentralization and security. Copies of the contract are instantly created and stored as proof-of-work, and the nature of blockchain prevents that the alteration of any of these copies breaks the consensus on the original terms of the contract.
Paving ways for better services
Just like the example above, different industries can obtain great benefits from implementing smart contracts into their day-to-day operation cycles. From simple, direct ways to ensure faster and safer services for their customers to keeping thorough history of previous operations, the potential is nearly unlimited.
Both parties, under legal and technological advise, can come up with their own smart contract for selling or renting a property, that defines all the conditions that need to be met by both parties for the transactions to be complete. If any of the defined conditions is not met (e.g. there is something to be fixed or replaced), the funds are kept within the contract until the issue is resolved or the buyer asks for a refund.
Arguably the most obvious of applications. Smart contracts offer the same versatility as real-life contracts do in terms of controlling the role of each of the involved parties, with the benefit of securing them from tampering and the availability of hundreds of copies that verify the contents of the original contract.
With the popularity that self-driving vehicles have acquired in the past years, smart contracts have the opportunity to settle down some of the most discussed topics within the subject: who’s at fault at a crash? Using the information gathered from the sensors, a simple code can be written that analyzes the different variables and determines whether the driver was at fault in case of an accident, or if it was caused by a malfunction of the system.
This not only helps in improving the public image of the system, but would also be useful for insurance companies, as they can decide to set new terms for users that operate their vehicles in different conditions.
Among the most ambitious uses smart contracts could have, one is the ability to widespread voting in elections among those that decide not to form in line or filling out forms. With the level of protection from tampering that blockchain offers, voting can still remain confidential and secure, while also offering more tech-friendly ways to do it, hopefully countering the reasons of recent low turnouts.
What’s the limit of smart contracts? Right now, it’s quite difficult to tell, but the wide range of utility they offer is near to the pinnacle of what blockchain can offer to make our society, as centered on technology as it is, as safe and user-friendly as we deserve it to be.