Contracts are an integral aspect of the professional and personal lives of numerous people worldwide. Almost everyone makes deals while purchasing products or providing services. However, traditional contracts and legal agreements have always depended on the intervention of an intermediary. Interestingly, the different smart contract advantages have helped to redefine the creation and use of contracts.
Smart contracts rely on automated computer programs to execute agreements automatically upon compliance with specific pre-defined conditions. Blockchain-based smart contracts help simplify business transactions and information exchange among anonymous parties without trusted centralized intermediaries. How have smart contracts become one of the most noticeable priorities in discussions about the future of technology? Let us learn more about the top advantages introduced by smart contracts in the following post.
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Why Should You Learn the Advantages of Smart Contracts?
Before looking for an outline of smart contracts benefits, it is important to solve your doubts about learning the pros of smart contracts. As of August 2022, the total number of contracts deployed on Ethereum blockchain since its beginning had reached 44 million. In the first quarter of 2022, the total number of smart contracts created on the Ethereum blockchain was 1.45 million. Interestingly, the rate of smart contract development on Ethereum showcased radical quarter-to-quarter growth at 453%. Apparently, the total number of smart contracts deployed to the Ethereum blockchain in Q4 2022 was 4.6 million.
Apart from the staggering growth in smart contract development, you can find many other reasons to learn about smart contracts. The advantages of smart contracts could help you understand how they serve the ideal fit for emerging use cases of blockchain. For example, smart contracts are a powerful resource for adding new functionalities in dApps. On top of it, the diverse use cases of smart contracts in different industries, such as retail, supply chain management, governance and healthcare, invite attention to their advantages. The use of smart contracts in creating NFTs is also another prominent reason for learning about smart contracts and their advantages.
Fundamentals of a Smart Contract
The best way to understand answers to “Why are smart contracts better than normal contracts?” would focus on the basics. A detailed understanding of the basic definition, components, and working of smart contracts can help in identifying how smart contracts are different from regular contracts. Let us begin with the definition to understand smart contracts.
A smart contract is a program stored on a blockchain network and executes when it detects compliance with certain pre-determined conditions. The primary objective of smart contracts is the automation of agreement execution, thereby assuring all participants of agreement finality. Smart contracts do not involve any intermediaries or delays owing to the benefits of automation.
You can find a glimpse of the benefits of smart contracts in basic examples. Let us assume that a buyer and seller have created a contract specifying that the buyer would pay the seller upon receiving the goods. Smart contracts can ensure that the seller receives the payment for the goods immediately after the buyer verifies the receipt of the goods.
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Special Highlights of Smart Contracts
The next important factor for understanding the advantages of using smart contracts would refer to their unique traits. What are the special highlights which make smart contracts better than traditional contracts? The use of smart contracts on blockchain networks ensures certain distinct traits for blockchain-based applications.
As a matter of fact, you can find certain noticeable smart contract benefits due to the features of blockchain technology.
- Smart contracts are immutable, which means that no one can modify them after deploying on blockchain networks.
- Confirmation of all operations with the smart contract by all participants in the blockchain network ensures better safeguards against fraud.
- Another important highlight of smart contracts refers to the fact that they are open source. Anyone could view the code of the smart contract and check whether it works according to desired requirements.
The search for important benefits associated with smart contracts should also focus on special highlights such as the key components. You can find clear explanations of answers to “Why are smart contracts better than normal contracts?” by understanding the working of individual components. The smart contract components include participants, subject of the transactions, conditions and the program code.
Every participant in the smart contract must have their own digital signature, while the subject of transaction specifies the type of transaction. The conditions refer to the terms of the transaction, represented with mathematical descriptions. Finally, you have the code of the smart contract program for executing the specified terms of the contract.
Working of Smart Contracts
Another distinct element in every guide to smart contracts is the way they work. You can find a better understanding of responses to ‘what are the benefits of smart contracts’ by learning how they work. First of all, you need to know that there are three different types of smart contracts, such as automated smart contracts, hybrid smart contracts and 2-in-1 smart contracts.
Automated smart contracts, as the name implies, are completely automated and do not require human intervention. Hybrid smart contracts involve traditional paper-based agreements, although with digitalized clauses, possibly for online financial transactions. The 2-in-1 smart contracts are characterized by a paper copy of the smart contract.
The fundamental description of how smart contracts work involves references to the algorithm in the smart contract code. Smart contracts work by converting business code to logic and execute on a virtual machine associated with a blockchain network. You can find clear answers to ‘what can a smart contract do’ from the following steps in working with smart contracts.
- Business teams work in collaboration with developers to define essential criteria to guide the desired behavior of smart contracts.
- Important conditions of the contract and events have to be defined in the smart contract logic.
- Developers have to integrate sophisticated functionalities for complex operations, such as automatically releasing insurance claims payments.
- Developers use a smart contract development framework for creating and testing the smart contract logic. Once the developers have created the smart contract, they send the application for security testing.
- In the deployment stage, the contract is deployed on blockchain networks alongside configurations for working with oracles.
The best approach to understanding the benefits of smart contracts would guide you toward the technical description. Smart contract programs involve ‘if/when’ conditional systems and the network of computers or nodes in a blockchain network executes the actions specified in the contract. Multiple nodes confirm whether the conditions for the smart contract have been met before executing the transaction. Upon completion of the transaction, the blockchain network has to be updated.
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Use Cases of Smart Contracts
The introduction to the advantages of blockchain-based smart contracts should also reflect on the real use cases of smart contracts. As a matter of fact, answers to ‘what can a smart contract do’ would provide the best foundation for understanding their benefits. Smart contracts can help revolutionize insurance through automation of claims verification procedures and transferring insurance payments.
Smart contracts can also help in creating decentralized voting systems, which would involve the use of digital identity. Voting systems based on smart contracts can register each vote on a blockchain, thereby avoiding intervention by third-party agencies. Decentralized crowdfunding systems, such as DAOs, based on smart contracts can help in addressing the problems with the management of centralized systems. You can also identify the prominent smart contract advantages through a review of real-world examples of smart contract applications. Here are some of the top examples of how businesses utilize smart contracts to achieve crucial benefits.
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Efficient Pharma Supply Chains
IBM and Sonoco have come up with innovative smart contract solutions for improving supply chain transparency. The Pharma Portal, based on the IBM Blockchain Transparent Supply mechanism, serves efficient tracking of temperature-controlled medications within the supply chain.
Faster International Trade
The outline of smart contracts benefits with IBM Blockchain also include references to we.trade, a new trade finance network. The network aims to create a massive ecosystem of businesses to enable international trade. With the applications of simpler trading options and standardized rules, we.trade can expand new trade opportunities for participating organizations.
More Trust in Supply Chain
Another example of the advantages of smart contracts points at The Home Depot, which has been utilized for smart contracts for the resolution of vendor disputes. Home Depot leverages smart contracts for better traceability of the supply chain and real-time communication. As a result, the company has developed a trust-based relationship with suppliers, thereby leading to innovation and productivity.
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List of Smart Contract Benefits
The fundamentals of smart contracts, their components, working, use cases, and examples provide a clear description of their potential. You must have discovered many answers to “what are the benefits of smart contracts” by now. Here is an outline of the distinct advantages you can expect with smart contracts.
The first thing you can find in the basic traits of smart contracts is the assurance of transparency. The smart contract logic is visible to everyone in the blockchain network on which it is deployed. Therefore, all the participants in a smart contract could see the terms and conditions of the smart contract alongside the changes. The immutability of smart contracts also ensures that no one can challenge the terms of the contract after they have been deployed. The assurance of complete transparency of transactions with the smart contract for all participants ensures credibility.
The answers to “Why are smart contracts better than normal contracts?” would also refer to the importance of accuracy. Smart contracts must register all the terms and conditions of the agreement with clear descriptions. Comprehensive testing of smart contract codes ensures safety against unwanted omissions. In addition, smart contracts do not involve the tedious tasks of filling out forms or any activity that can result in human errors.
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Speed of Transactions
The fundamentals of smart contracts show that they are completely automated and rely on software logic. Most important of all, the benefits of smart contracts emerge from the fact that they remove intermediaries from normal contracts. Therefore, smart contracts do not have to wait for multiple approvals or manual document processing to execute transactions. As a result, smart contracts can help in saving time for different conventional business processes.
One of the most appealing entries among smart contract advantages refers to the assurance of cost savings. Automated smart contract operations remove the need for an extensive base of intermediaries. For example, businesses don’t have to rely on banks, lawyers, witnesses and other intermediaries for executing agreements or contracts. Therefore, smart contracts could help in avoiding the fees for lawyers, transaction charges of banks, and other processing costs.
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The assurance of accuracy and speed of transactions with smart contracts offers a guarantee for efficiency. Businesses can achieve better efficiency in processing transactions through smart contracts alongside improving other business processes. Smart contracts can help encourage more value-based transactions for businesses with efficient use of time.
Smart contracts capitalize on the traits of blockchain technology to facilitate the benefits of security. You can find answers to “what are the benefits of smart contracts” in the facility of encryption for all blockchain transaction records. The advantage of cryptographic encryption is that it avoids security risks. In addition, the design of the blockchain features connection among the blocks with unique hashing mechanisms. Therefore, any hacker would have to modify the whole chain to alter a single record or transaction, which can be cost-intensive.
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The positive highlights of smart contracts also emphasize the element of trust. Automated smart contracts ensure timely execution of transactions according to specified conditions. In addition, the assurance of security and transparency with smart contracts reduces the possibilities for manipulation, error or human bias. Businesses can trust smart contracts for automatic execution according to pre-defined conditions.
The element of trust in smart contracts is clearly supported by the advantage of detailed documentation of all transactions. The advantages of smart contract working on blockchain networks ensure that you have a detailed record of all transactions executed with the smart contract. Documentation offers a clear audit trail, thereby offering required information on transactions for future reference.
Another huge advantage associated with smart contracts is the opportunity to encourage sustainability. Smart contracts could help in shifting a lot of paperwork to the digital space, thereby saving considering amounts of paper.
Diversity of Applications
The list of the top smart contracts benefits would also feature details about the potential of smart contracts for addressing a wide range of applications. You can find a glimpse of the potential of smart contracts in the different real-world examples of smart contract applications. Smart contracts have been adopted in many industries, such as logistics, healthcare, financial services, voting systems and legal contracts.
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The detailed overview of smart contracts and their beneficial implications for society prove the reasons for their domination over the world of technology. Smart contracts offer the foundations of a trustless digital landscape, where users can access functionalities of an app or service without intermediaries.
Most of the smart contract advantages are directly associated with the design and basic principles of smart contracts. On the other hand, certain advantages emerge from application-specific uses of smart contracts. Learn more about smart contracts development with comprehensive training courses right now.
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. 101 Blockchains shall not be responsible for any loss sustained by any person who relies on this article. Do your own research!