Why do we need to know about Smart Contracts and their use cases?
The world of finance is changing.
Just as Amazon changed retail and Über changed transport, Decentralized Finance (DeFi) and the introduction of blockchain technology is already changing the way the financial industry operates, with smart contracts and their use cases pioneering a fairer and more trust-worthy global economic system.
Smart Contracts will have applicable cases across many industries.
Smart contract use cases have the potential to revolutionize the speed and efficiency of everyday financial transactions and contracts.
In this post we’ll cover:
- What is a smart Contract?
- Why blockchain technology is the backbone of all smart contracts
- How to write a smart contract and different programming languages (It’s really not that difficult!)
- Decentralized finance
What is a Smart Contract?
Imagine a world where you can give instructions to your money.
You could move money with specific instructions, only executable upon a specific event occurring, i.e when you’ve just been paid.
Well, now you can. A smart contract provides the opportunity to cut out the middle man in all monetary transactions, i.e a broker, realtor/estate agent, banks etc.
How Does a Smart Contract Work?
We can give pretty much any direction or instruction to any type of fiat or crypto currency held within a smart contract.
We are living in a world of programmable money. A smart contract removes all elements of trust, and relies on mathematical verification and computer protocols to execute actions for use cases within minutes which otherwise could take days or weeks to complete.
Similar to carving in to stone, these contracts are immutable, meaning they can not be changed or adjusted. Once written, smart contracts are deployed on to a blockchain.
The first and most popular blockchain for smart contract use cases is the Ethereum blockchain. However smart contracts can be deployed on to any supporting blockchain network including:
- Aion (AION)
Who Invented Smart Contracts?
Nick Szabo computer scientist, lawyer and cryptographer in 1994 released a white paper with the concept called smart contracts. Szabo defined smart contracts as “computerized transaction protocols that execute terms of a contract“.
4 year later, Szabo created Bit Gold in 1998 10 years before the invention of Bitcoin.
Pseudonymous developer(s) Satoshi Nakamoto created Bitcoin in 2009. Bitcoin was the first use case of blockchain technology, allowing a currency and its’ transactions to be completely transparent and decentralized.
Since 2009 many people have speculated that Szabo is Satoshi Nakamoto, although he has repeatedly denied it.
In 2015 Vitalik Buterin created the Ethereum blockchain allowing decentralized apps and smart contracts to be built on top of the blockchain for many different use cases, allowing them to be deployable and immutable.
These automated pockets of code have since been introduced to newer blockchains, still programmed to self-execute. They can also contain functions that interact with other contracts, store data, make decisions and send cryptocurrency to other people.
How to Write a Smart Contract
Smart contracts are written specifically for each individual use case.
The user will specify the function and desired outcome, along with any exceptions (i.e when a number falls below certain threshold, natural disasters/pandemics) that can automatically trigger a contract to be cancelled or held.
Smart Contract Programming Languages
The chosen programming language to write a smart contract is dependant on the blockchain on which it will be deployed.
Solidity allows developers to deploy smart contracts on to the Ethereum blockchain. However, smart contracts that are deployed on the Ethereum network can be easily ported to alternative blockchain networks.
C++ is the recommended programming language for developers to use on the EOS network through its WebAssembly virtual machine (WASM) which can be written using other languages, however C++ is usually the preferred language.
The Truffle Suite
The Truffle Suite is brought to you by Truffle Blockchain Group, Inc. Truffle makes sweet tools for blockchain developers which includes 3 applications- Truffle, Ganache and Drizzle.
You can download the Truffle Suite for free to start writing your own smart contracts. By default Truffle is dedicated to Solidity smart contracts but can utilise the Vyper programming language for different projects.
Remix by Ethereum is a powerful, open source tool that helps you write Solidity contracts straight from your browser. It contains a suite of tools that aids intelligent contract development, compilation, testing & deployment.
Start writing your own clever contracts for the Ethereum blockchain by clicking here
No experience? No problem!
If you are completely new to computer programming languages with no development experience we’ve got you covered.
The Ivan on Tech Academy is the largest online educational platform for blockchain and cryptocurrency. It has over 20 fully certified courses, with new ones added each month that will teach you all you need to know about writing your own smart contracts from scratch…plus a lot more!
Everything from Bitcoin, Blockchain & DeFi 101, to writing and deploying your own smart contracts! Read our Ivan on Tech Academy Review 2020 here!
What Can Smart Contracts Do?
These apt records maximize efficiency and reduce costs for many different businesses and industries more than traditional contracts made between third parties.
Safety is ensured in smart contracts as the data in the blockchain (which can also be referred to as a decentralized distributed ledger) cannot be lost or destroyed and is not prone to cyberattacks.
Businesses can now program instructions to allow for exceptions incase of natural disasters or unforeseen circumstances, so that should anything out of the ordinary happen, the contract can be held or cancelled. This could have been particularly useful for the oil industry in recent months with some oil suppliers resulting to storing oil barrels in their own homes!
Peer to peer transactions this technology makes transferring money faster, more efficient, and more trust-worthy than banks.
No delays outside business working hours.
Transactions are verified mathematically not by a human who could have something to gain from manipulating data within the contract, or by someone working in an office for a centralized authority whom, without their morning coffee, may mistakenly type in the incorrect amount for a transaction. (It happens!)
BONUS SMART CONTRACT EXAMPLE
How to make your kids perform better at school!
So let’s say you want your kids to do well at school.
You can create a smart contract stating that if your child does well and gets an A they would receive $50, or if they got a B they would receive $30, or $20 for a C etc.
Once this smart contract is deployed, there’s no going back or changing it. The element of trust is removed and your kids will have a fixed, unalterable monetary agreement, which will then appear in their account upon receiving the grades.
3 Example Smart Contract Use Cases:
However there are many other cases of smart contract use out there we’ve listed 3 that you may recognize coming in to play in the not too distant future:
Smart Contract Use Case #1
- Real Estate
Buying and exchanging property is about to become a whole lot easier and cheaper. Smart contracts are immutable, with the terms of agreement between buyer and seller being written directly into code.
Agape Properties were the first Realtor/Estate Agents in the UK to accept cryptocurrency as payment in August 2017. 4 months later the first house ever to be bought with Bitcoin was in Essex, UK December 2017.
However this was NOT the first house to be bought with cryptocurrency!
The first house purchased using cryptocurrency was bought with Ethereum in Kiev, Ukraine 3 months prior.
Real Estate and Letting Agents could become a thing of the past. Tennants can pay rent directly to their Landlord using smart contracts with no need for intermediaries.
In 2013 International Blockchain Real Estate Association (IBREA) was established to encourage people to purchase property using blockchain technology. IBREA state that, “Blockchain can reduce costs, stamp out fraud, speed up transactions, increase financial privacy, internationalize markets, and make real estate a liquid asset.”
Smart Contract Use Case #2
- The Music Industry
The music industry has seen an unfortunate turn of events with the recent pandemic cancelling tours and shows across the world, however the evolution of blockchain and smart contracts is something that can help musicians in the coming years.
Smart contracts allow artists to be paid much more efficiently and transparently by removing third parties from the equation.
MediaChain is a New York based peer-to-peer blockchain database for sharing information between different organizations about distribution and royalties. They work with artists to ensure they are paid fairly using smart contracts. Musicians directly state their royalty stipulations without the whirlwind of third parties or agencies.
In 2017 Spotify acquired MediaChain in aid of solving royalty payment issues in the music industry.
Choon was founded in London as a music streaming and digital payment platform that uses blockchain to pay artists fairly and faster than ever before. Musicians normally wait an average of 6-9 months, sometimes 12 months for commissions and royalty payments to come through.
With the use of smart contracts, Choon can reward artists almost instantly (dependent on how many streams the platform records for any specific day)
Real-life use case: Artist Imogen Heap released single Tiny Human on the newly launched Ethereum platform in 2015 using Mycelia. Mycelia’s smart contract payment system was used to pay artists on the platform.
Smart Contract Use Case #3
Blockchain technology is set to revolutionize the healthcare industry, improving the experience of both medical practitioners and patients whilst bettering patient care and satisfaction through increased efficiency.
Smart contracts can be deployed on the blockchain to help maintain data and ensure patients’ sensitive medical information is stored securely and transparently.
As a patient’s records would be stored on a decentralized digital ledger, patients can attend multiple hospitals or clinics effortlessly, without having to fill out loads of forms.
Their preferred physician will then be able to view the records on the blockchain at a later date.
Blockchain could reduce healthcare costs through tokenization, therefor removing third-party agents and counterfeit pharmaceutical products or malicious software.
According to a report by Bis Research the healthcare industry could save an estimated $100 Billion by 2025 with the use of blockchain technology and smart contracts.
Healthcare companies could take a much-needed turn toward improved communication and efficiency, complete transparency and accountability.
BONUS SMART CONTRACT USE CASE EXAMPLE
Writing your will, your way.
Another use case of smart contracts is writing your own legal will. You can ensure that your estate is distributed exactly to your specifications after you’ve passed on.
Let’s say you want your children to inherit your money when you die. You can program this in to a smart contract which will hold the money until your death is recorded or there is no interaction with the contract for certain amount of time.
You can still access your money as normal whilst you’re alive. All that’s required of you is that you interact with the smart contract at a specific frequency which you decide. You could set this to be any arbitrary period of time.
If you go longer than the set period of time without any interaction, the smart contract will then assume you’ve passed away and will release your assets to your children.
No third party solicitor fees or agent involved!
Decentralized Finance (DeFi)
Decentralized finance is one of the largest and most important use case for smart contracts, particularly, the Ethereum network.
Decentralized finance brings valuable information together with valuable technology. The DeFi network develop software as open source projects to make it easier for developers working on multiple projects with different companies so that they can use each others software.
DeFi takes traditional financial applications and makes them decentralized by removing third parties, centralized institutions and any single point of authority.
Today in 2020 the most popular use case for DeFi and smart contracts is in credit and lending.
defipulse.com is an awesome website that shows how much value is locked in to smart contracts on the Ethereum blockchain. DeFi Pulse calculates the TVL (total value locked) by monitoring protocol’s underlying smart contracts for decentralized applications (Dapps) built on the Ethereum blockchain. Charts are refreshed every hour by pulling the total balance of Ether (ETH) (and ERC-20 tokens) held by these smart contracts.
The Total Value Locked, or TVL, is calculated by taking these balances and multiplying them by their price in USD.
At the time of writing (31/05/2020) there is $943.4 million held in Ethereum smart contracts!
Smart contracts and the use of blockchain technology can be seen in a variety of different cases, solving the age old issue of trusting humans and highlighting the importance of provenance across many industries.
Provenance and blockchain technology allow for proof of origin and supply quality to be verified mathematically. This could improve standards across the entire food industry network, for farmers, manufacturers, supply-chain producers and retailers alike.
Italy has confirmed it is investing €15 million into blockchain technology this year in 2020 for ‘Made in Italy’ provenance.
According to a new report by dGen, counterfeits of the “Made in Italy” label caused a loss of €12.4 billion ($13.4 billion) in 2016 alone.
The Italian government recently allocated €15 million to support the research and technology of digital applications in blockchain, including a joint project between IBM Italy and the artisan community.
Blockchain is big. The scale of smart contracts and their uses cases is global and industry-wide.
Thank you for reading this article if you feel a little more clued-up as to what a smart contract is and their different use cases why not share it online with your friends! Get ahead of the game whilst the technology is still young, now is the time to learn!
This is NOT financial advice. Beginners Crypto Guide does NOT OFFER formal nor informal financial advice and accepts no liability for such service. You should always do your own research before making any financial decisions.