Smart contracts are getting a lot of attention in connection with the topics around the blockchain. Find out why this is the case and how smart contracts are relevant for companies in this blog article.
Anyone who has ever bought a house, a flat or a plot of land knows how much effort this process can involve. In addition to the buyer and seller, at least the land registry office, usually a bank, the notary and the responsible tax office are involved in the purchase process. Smart Contracts make processes like these much easier with the help of blockchain technology.
Smart contracts are based on the blockchain and have its advantages: speed, security & automation options
What may take several weeks can theoretically be done in a few minutes with smart contracts. All relevant information on land charges, building permits, tenure, loan agreements and tax obligations can be entered in the Blockchain stored - tamper-proof.
Actions such as changing the land register entry can also take place automatically as soon as the money has been transferred to the seller. The blockchain provides the basis for Smart Contractsthat have the potential to transform the entire economy.
Smart Contracts and the "If-This-Then-That" Logic
The way smart contracts work is most easily explained by the formula "If-This-Then-That" - which is also the source of the name of the start-up IFTTT. This equation stands for both a basic principle of the Programming as well as symbolic for Automation. If a certain condition is fulfilled ("if this"), then a predefined action ("then that") takes place automatically.
The following also work according to this principle Smart Contracts. As soon as a certain condition is fulfilled - an ordered good arrives at point A - it is automatic a linked action is triggered - the goods are paid for.
Trust is technologically built into the system
The advantage of smart contracts over normal transactions: They can also be used by people who do not know each other and therefore do not yet know each other. Trust have built up towards each other. The safe technologyThe blockchain, which is behind the smart contracts, establishes or replaces trust.
Link tip: In this article we have compiled everything worth knowing on the topic of Data security compiled.
Not only trading platforms like Ebay or Amazon, but also services like those offered by Airbnb or Uber could be completely converted to smart contracts. The advantage: The over Smart Contract Transactions processed are more efficient, secure and cheaper.
Link tip: Also read our blog article about brick-and-mortar retail and how it can benefit from machine learning.
Areas of application beyond payment transactions
Most people think of Bitcoin and other blockchains when they hear the word blockchain. Cryptocurrencies. Although secure, cashless payment is the most prominent area of application for blockchain technology, it is only one of many possible uses.
Blockchain providers like Ethereum are already showing that Cryptocurrencies and Smart Contracts go hand in hand, because the largest share of payment transactions is directly or indirectly linked to the Fulfilment of a contract has to do with. Direct ordering processes that take place fully automatically between machines or things in the Internet of Things can thus be planned and carried out clearly and securely.
Reading tip: In our article about the Internet of Things and in the context of Industry 4.0, we are dealing with the consequences of comprehensive networking.
The charm of smart contracts is their efficiency & security
In this respect, smart contracts are a logical complement to the development of currencies such as Bitcoin, Ether or Lif. In a way, they make the actual Charm the Technology out. But smart contracts can also fulfil important functions independent of payment transactions.
Important documents such as credentials and certificates can tamper-proof and play a role in the application process or in tenders. Complex processes such as public building projects in which the EU, federal government, federal states or cities are all involved can thus be carried out more efficiently.
Smart contracts in the area of states, administrations and organisations
Contracts in general play an important role in official life: Marriages can already be concluded via blockchain, as can sales contracts, land register entries, notarisation or inheritance. In addition, blockchain and smart contracts play an important role in automated governance in companies and public authorities.
By making the decisive Supervisory body of contracts and transactions is embedded in the technology, happen less errors and the processes run Controlled as of.
Future application scenarios for smart contracts
But other official procedures can also be digitised and Elections could be designed to be absolutely forgery-proof. This is a great advantage over previous practices, especially in the age of cybercrime, election interference and electoral fraud.
Another effect of smart contracts is the Reduction of fraud cases in other areas. For example, in the billing of prescriptions with health insurance companies. Damages caused by so-called "air prescriptions" now amount to billions. In this process, prescriptions are billed without a sale of medicines actually taking place. If prescriptions were designed as smart contracts, fraud would be almost impossible.
Numerous companies already rely on the blockchain and smart contracts
In addition to banks and insurance companies, the first large corporations such as Lufthansa or SAP are already testing blockchain technology and smart contracts. But also for smaller companies and the Medium-sized companies the use of smart contracts can be interesting. Particularly in areas where many critical processes converge, a smart contract can bring Smart Contract advantages like:
- more security
- Increase effectiveness
- Partial automation of processes
- Reduction of administrative costs
The use of smart contracts can be particularly worthwhile in complex processes, for example the cooperation of several companies in the automotive sector or in an international context.
Within the framework of the data-driven digitalisation secure solutions such as smart contracts offer an additional incentive.