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  • Erick A. Mosteller

Understanding Blockchain Smart Contracts




A smart contract is a self-executing contract with the terms of the agreement between buyer and seller directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized blockchain network. Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism. They render transactions traceable, transparent, and irreversible.


Blockchain Networks Supporting Smart Contracts

  1. Ethereum: The pioneer and most widely used blockchain for smart contracts, Ethereum introduced the concept of a programmable blockchain that can execute complex contracts.

  2. Binance Smart Chain (BSC): Known for its high throughput and low transaction fees, BSC is a major player in the DeFi (Decentralized Finance) and NFT (Non-Fungible Token) spaces.

  3. Polkadot: This network's unique architecture allows different blockchains to interoperate, facilitating a multi-chain ecosystem for smart contracts.

  4. Cardano: Launched as a more energy-efficient alternative to Ethereum, Cardano aims to provide more secure and scalable smart contracts.

  5. Solana: Famed for its incredibly fast processing times and lower costs, Solana is becoming a popular choice for developers.

  6. Tezos: Known for its on-chain governance and formal verification system, Tezos aims to provide a more robust infrastructure for smart contracts.

  7. EOSIO: Designed for both public and private use cases, EOSIO is known for its scalability and user-friendly design.

  8. Avalanche: A highly scalable blockchain platform, Avalanche is gaining traction for its speed and capacity in handling smart contracts.

  9. Algorand: Offers advanced smart contract capabilities with a focus on speed, efficiency, and security.

  10. NEO: Often referred to as the "Chinese Ethereum," NEO supports a wide range of common programming languages, making it accessible to a broader developer community.


Uses of Smart Contracts

Smart contracts are versatile and have a wide range of applications:


  1. Financial Services: Decentralized Finance (DeFi) applications, automated loans, and insurance payouts. Smart contracts can be used to automate the process of executing financial transactions. They can be used to verify the identity of the parties involved, ensure compliance with regulations, and automate the payment process. This can help to reduce the time and cost associated with traditional financial transactions.

  2. Supply Chain Management: Tracking products from manufacture to delivery, ensuring transparency and authenticity. Smart contracts can be used to track the movement of goods through the supply chain. They can be used to verify the authenticity of products, ensure compliance with regulations, and automate the payment process. This can help to reduce fraud, errors, and delays in the supply chain.

  3. Real Estate: Streamlining property sales, reducing fraud, and automating rental agreements. Smart contracts can be used to automate the process of buying and selling real estate. They can be used to verify the ownership of a property, transfer ownership, and execute the payment. This can help to reduce the time and cost associated with traditional real estate transactions.

  4. Voting Systems: Enhancing security and transparency in elections and organizational voting. In the case of voting systems, smart contracts can be used to create self-executing voting systems that are transparent and incorruptible. For example, a group from RMIT University, Melbourne believes they have developed the first self-tallying voting system using a smart contract deployed on Ethereum. The use of smart contracts gives greater functionality to the voting system, wherein people are able to rank a set of candidates as opposed to simply voting in a binary way. This can help to reduce the time and cost associated with traditional voting systems, and provide a more secure and efficient way to conduct elections.

  5. Healthcare: Secure and efficient management of patient records and consent forms. Smart contracts can be used to automate the process of sharing medical records between healthcare providers. They can be used to verify the identity of the patient, ensure compliance with regulations, and automate the payment process. This can help to reduce errors and delays in the healthcare system.

  6. Entertainment and Media: Managing intellectual property rights and royalty distribution. Smart contracts can be used to automate the process of royalty payments to artists and creators. For example, the blockchain-based platform Ujo Music uses smart contracts to ensure that artists receive their fair share of royalties for their work. Smart contracts can also be used to create decentralized platforms for content distribution, such as the blockchain-based platform SingularDTV. This can help to reduce the power of intermediaries and provide a more direct relationship between creators and consumers.

  7. Legal Processes: Automating legal procedures and contract enforcement. In the legal processes, smart contracts can be used to automate the process of creating and executing legal agreements. Smart contracts can map legal obligations into an automated process, providing a greater degree of contractual security. For example, smart contracts can be used to automate the process of buying and selling real estate, verifying the ownership of a property, transferring ownership, and executing the payment.

  8. Identity Verification: Providing secure and immutable identity verification systems. Smart contracts can be used to create a decentralized digital identity system. They can be used to verify the identity of individuals, store personal information securely, and provide access to services. This can help to reduce the risk of identity theft and provide individuals with more control over their personal information.

  9. Gaming: Enabling secure in-game purchases and tokenization of assets. In the gaming industry, smart contracts can be used to create self-executing gaming systems that are transparent and incorruptible. Smart contracts can be used to eradicate fraud and cheating, verify the ownership and trade of in-game assets, and bring real-world value to in-game items. For example, smart contracts can be used to create decentralized platforms for content distribution, such as the blockchain-based platform SingularDTV.

  10. Internet of Things (IoT): Facilitating communication and transactions between connected devices. Smart contracts are being used in the Internet of Things (IoT) to create a secure, transparent, and efficient way to execute transactions. Smart contracts can be used to automate multi-step processes, facilitate the sharing of services and resources, and create a marketplace of services between devices. For example, smart contracts can be used to automate the process of collecting and processing data in IoT devices. By using smart contracts, devices can be automatically configured to collect data and then process and store it in a secure, decentralized manner. Smart contracts can also be used to create a decentralized marketplace for IoT devices, where devices can be bought and sold without the need for intermediaries.

  11. Insurance: Smart contracts can be used to automate the claims process for insurance companies. They can be used to verify the validity of a claim, calculate the payout, and execute the payment. This can help to reduce the time and cost associated with traditional insurance claims.

  12. Intellectual Property: Smart contracts can be used to automate the process of managing intellectual property. They can be used to verify ownership, manage licensing agreements, and automate the payment process. This can help to reduce the time and cost associated with traditional intellectual property management.

  13. Energy: Smart contracts can be used to automate the process of buying and selling energy. They can be used to verify the production and consumption of energy, calculate the payment, and execute the transaction. This can help to reduce the cost of energy and increase the efficiency of the energy market.


Most Used Smart Contracts



  1. DeFi Protocols: Contracts for lending, borrowing, and yield farming are among the most used.

  2. NFT Marketplaces: Smart contracts for minting, buying, selling, and trading NFTs.

  3. Decentralized Exchanges (DEXs): Facilitating peer-to-peer trading of cryptocurrencies without intermediaries.

  4. Gaming Platforms: In-game asset creation and transactions.

  5. Token Creation: ERC-20 (fungible) and ERC-721 (non-fungible) token standards on Ethereum are widely used for creating digital assets.

  6. Automated Governance Protocols: For DAOs (Decentralized Autonomous Organizations), where decisions are made collectively through smart contracts.

  7. Supply Chain Tracking: Used extensively in industries for product verification and tracking.

  8. Automated Insurance: Contracts that automate claims processing based on predefined criteria.

  9. Real Estate Transactions: Automating various aspects of property sales and rentals.

  10. Digital Identity Verification: Increasingly used in KYC (Know Your Customer) and identity verification processes.

Conclusion

Smart contracts represent a revolutionary step in the digitization of many sectors, offering security, efficiency, and a high degree of automation. As blockchain technology evolves, the scope and complexity of what can be achieved with smart contracts continue to expand, heralding a new era of decentralized digital transactions.




Erick Mosteller is a 35-year entrepreneur and business development consultant who is passionate about elevating critical understanding through effective information. Mr. Mosteller has degrees in ethnography, business administration, and International Marketing. Mosteller believes development of the rational mind and thoughtful training of the reactive mind is the key to long lasting happiness and understanding. Stay tuned for greater insights.

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