Brushing up on your blockchain knowledge? Let’s take a look at smart contracts and how they work…

A smart contract is a program on the blockchain that runs when certain pre-established conditions arise. They are a useful way to automate the execution of an agreement in a fast and reliable way. Because they run on the blockchain, smart contracts are also permissionless — there’s no need for an intermediary to facilitate.

What’s more, smart contracts mean that all participants can immediately see the outcome. They can also be confident that it cannot be tampered with. Smart contracts make peer to peer transactions quick and streamlined.

How do smart contracts work?

Smart contracts can be compared to vending machines

You could compare a smart contract to a vending machine — both have logic programmed into them. 

As Ethereum puts it, a vending machine works on the equation: money + snack selection = snack dispensed.

When predetermined conditions have been met and verified (i.e. someone has placed money in the vending machine and pressed a button to choose their snack), an action will be executed. In this analogy, the snack is dispensed. Essentially, a smart contract defines rules (like any contractual agreement) and automatically enforces its end of the bargain once the rules have been obeyed.

And just like a vending machine doesn’t need a catering assistant to give the snack to the buyer, smart contracts don’t rely on an intermediary to complete the transaction. Instead, a network of computers verifies and carry it out. 

Moreover, because smart contracts are permissionless, anybody can write one and deploy it to the network.

What can you use smart contracts for?

You can apply smart contracts to all kinds of situations — from crowdfunding agreements to insurance claims. Essentially, anything that requires the secure deployment of a contractual agreement.

Here are a few uses for smart contracts:

Banking and financial services contracts

Using smart contracts in banking can simplify some financial procedures, speed up transactions and make them more transparent. Because everyone involved can see the results, there’s little room for error.

Healthcare records

Any company in any industry that needs to keep records could benefit from smart contracts. 

However, the healthcare sector, in particular, could make the most of blockchain technology and smart contracts. Healthcare computer systems around the world hold hundreds of millions of patient medical records that contain sensitive information.

Current security systems and storage methods used in healthcare can still be vulnerable to cyber-attacks and human error. Blockchain-based systems are far more secure. Not only do they encrypt the records, but they also facilitate the use of private keys, meaning only authorised persons can access the information. 

As well as record-keeping, smart contracts could support the healthcare industry with issuing prescriptions, stock management, and storing receipts and test results.

Medical research

Another application for smart contracts in the healthcare sector is medical research. Blockchain applications can make the transfer of patient records and trial results more secure. For example, as with improving supply chains, blockchain technology can ensure documents won’t get lost. 

The information would be encrypted, keeping sensitive data and results about drugs or treatments safe. However, if the time came for researchers to reveal the information to a third party, they could do so securely.

Property ownership and mortgages

Smart contracts could make property transactions smoother

Smart contracts make recording things such as property ownership or property transfers much faster and more cost-efficient than current practices. 

Because blockchain transactions are peer-to-peer, smart contracts could eliminate the need for services provided by lawyers and housing brokers. People buying or selling houses would be able to carry out the transaction without an intermediary.

The same goes for mortgages. Transactions could become quicker, cheaper and more secure by using smart contracts. Let’s face it, moving can be stressful! Employing blockchain technology could make the process smoother.

Both parties could digitally agree to the sale before processing the payment. Once both parties had agreed on the transaction, the contract would automatically update to show the change of ownership.

And because blockchain transactions require keys, the use of smart contracts in property sales and mortgage agreements would reduce the risk of fraud and make the whole process more secure.

Voting

Despite using expensive computer systems, allegations of fraud are still rife when it comes to elections and voting. Fraudsters have been able to find new ways to manipulate the technology. 

Smart contracts, however, could be a solution to the problem. They could be employed to validate a voter’s identity then record their vote. Because transactions within the blockchain are impossible to change after recording, it would prevent tampering.

Are smart contracts the future?

As you can see, smart contracts offer a secure, permissionless way to record transactions across a range of industries. Their application could improve the future of healthcare, property, and voting, covering all aspects of society. What other industries do you think could benefit from blockchain technology and smart contracts?

And, of course, it’s worth remembering that smart contracts are also a key part of cryptocurrency storage and wallets! If you’re looking for secure, user-friendly storage for your crypto assets, don’t hesitate to check out Gridlock!