This article explores the idea of smart contracts, looking specifically at Ethereum contracts and some of the many potential use cases.
Ethereum contracts: what are they?
A smart contract is quite simply a legal contract that is created in a digital environment using blockchain technology. Smart contracts can be used in place of all the standard legal contacts such as leases, shares, property sales or anything else required by contracting parties.
The relationships and the requirements of the contract are enforced using crypto-code and the contracts self-execute in the exact manner that they have been set up to do by their creators.
The advantage of using a self executing contract versus the traditional legal contract is the elimination of a middleman and the associated costs and delays. The decentralised nature of the Blockchain technology used for the creation of smart contracts also ensures higher security of the contract, which accounts for its rising popularity among banks and governments.
Smart contracts are generally associated with the cryptocurrencies and although they started in the Bitcoin environment, Ethereum has fast become the platform of choice because of it’s unlimited processing capacity. The duplication of the smart contracts across the network also ensures that the contract cannot be lost or misplaced.
Ethereum smart contracts explained
In the traditional world, when you need a contract drawn up you would contact an attorney and discuss the terms and requirements with them and after a period of time, arrange with the other party to sign.
The executions of the clauses are also dependent on the attention of the parties or attorneys to enforce. In the case of a digital contract, the process has been likened often to that of a vending machine, you put your cryptocurrency in, determine the terms and out comes your contract.
The contract is created and becomes a part of the public ledger, while the parties remain anonymous. Once the triggering event takes place, which could be a date or a action by one of the parties, the contract becomes self-executing and the terms are enforced and the funds transferred.
Smart Contract Use Cases
Looking at the cast array of smart contract applications gives you an idea of the kind of impact this technology could have.
Smart contracts can be set up across multiple parties and the execution of the contract can be triggered when a certain percentage of the participants, or the majority, have approved the transaction.
Due to the flexibility and security, the application of smart contracts is limitless with it being considered for use in many industries including:
When it comes to ethereum smart contracts, banking looks set to be one of the most heavily impacted industries, with the potential to completely transform the way money is moved around the world.
In 2015, Blockchain smart contracts were used by the depository Trust and Clearing company to process more than 345 million transactions worth more than $1.5 quadrillion. Suggestions have even been made for using Smart contracts to replace the current voting system, as it will be faster, safer and more efficient, possibly increasing voter numbers.
The US Postal services has also been looking at using smart contracts for money transfers.
Smart contracts are gaining popularity across many industries and are replacing the use of traditional contracts in many instances.
Ethereum Contract Example
Below is one of many simple smart contract examples:
A smart contract could be used for the delivery of a news article by a freelancer. The parties will agree on the cost of the article and the date on which it should be submitted.
Once the editor has received the piece and is happy, the payment is triggered and the funds transferred via cryptocurrency to the freelancer. If the writer does not deliver, then the newspaper is refunded.