Vending Machine Analogy
Vending machines are essentially automated stores. Products are loaded into the vending machine; once stocked, prices for each item are set, and users must pay or insert the correct amount of money for an item in order to obtain it.
You may be wondering what happens if a user does not insert the full amount for an item; does the vending machine give the user another item worth their money? The answer is NO. Typically, the machine instructs the user to add more money in order to obtain the item. Isn't it cool?
In addition, even if you put in too much money, the vending machine will give you exact change. Vending machines have the advantage of requiring less human interaction, saving money and time. There are certainly some drawbacks, but we are optimistic.
Understanding how a vending machine works. Let us gradually introduce the concept of smart contracts.
Why were smart contracts invented?
Smart contracts were developed to eliminate the risk of third-party manipulation, thereby simplifying business and trade between two parties. The primary advantage of a smart contract is that the parties involved can conduct transactions without the need for an intermediary.
Smart contracts: What are they?
Early in the 1990s, Nick Szabo defined smart contracts as computerized transaction protocol that carries out a contract's terms. He continued, "I call these new contracts "smart," because they are significantly more functional than their inert paper-based forebears. No use of artificial intelligence is implied. "A smart contract is a set of promises that are specified in digital form, as well as the protocols that the parties use to carry out these promises."
We can conclude that smart contracts are a set of virtual agreements in the form of code between two parties that execute when the predetermined agreements are met.
How do smart contracts work?
Just like any other contract. Smart contracts are written agreements, but this time they are written with programming codes. Let us understand how they work
The parties must first agree on the contract's terms and conditions. These conditions are translated into codes and stored in the blockchain network for all parties to see and approve; at this point, the contract becomes immutable.
The smart contract is triggered when the conditions are met and the agreed-upon outcome occurs. This may sound complicated, so let's look at a real-world example.
Mr. A wants to sell his car, so he leaves it and the key in a secure location protected by a smart lock. He creates a smart contract that defines the conditions that must be met to purchase this car.
If Miss B sees the car ad on the internet and is interested, she sends the amount specified in the contract to Mr. A's address once the payment is confirmed, and she is granted all necessary access.
Additional clauses can be added to the contract, such as one that provides for a refund if the buyer is not satisfied with the condition of the car.
Applications of smart contracts
Smart contracts are used in different sectors around the world. This article will look at a few of them.
Finance:
Smart contracts automate manual banking processes that were previously performed by a financial institution. processes like loan eligibility, trading, and data recording. Smart contracts improve the speed and security of the finance sector.
NFTs:
NFTs are minted through smart contracts that designate ownership and reassign it upon transfer or resale. A smart contract serves as a tool for carrying out a sale agreement.
Real estate:
Smart contracts can be used to accelerate processes such as purchasing, renting, selling, leasing, and property development. They eliminate the need for third-party intermediaries and provide quick and secure transfers.
Insurance:
Smart contracts can help by allowing error checks and calculating payout amounts in accordance with a set of standards that take into account the type of policy that the person or organization had.
Health and agriculture:
By supplying the location of the commodity and making it possible for such commodities to be easily accessible, smart contracts can minimize or even eliminate food and medical supply waste.
Benefits of smart contracts:
Safety:
Cryptography is used to secure all of the crucial data, ensuring security. In doing so, the specifics of the contract and other important information are kept confidential. The highest level of data encryption is used in smart contracts.
Autonomous:
Smart contracts can execute and complete themselves without any interference or intermediary to confirm the transactions, thereby eliminating the risk of manipulation.
Speed and money saving:
When compared to paper transactions, smart contracts execute transactions much more quickly because they are completed automatically. This results in time and money savings.
Efficiency and accuracy:
By using smart contracts, errors that are caused by manually filling out many forms are eliminated. More transactions that add value are processed in a given amount of time thanks to higher efficiencies.
Transparency and trust:
When all parties are aware of the same information at once, the likelihood that the contract's terms will be manipulated is reduced. Once the contract is established, there is no way to dispute it. It is publicly accessible on the blockchain and can be viewed by anyone. The transparency offered by blockchain technology inevitably contributes to a stronger sense of trust.
Smart contract limitations
Smart contracts have a high risk of being compromised because, once they have been stored on the blockchain, they are immutable and difficult to change or correct.
Conclusion
Adoption problems are a given with technological advancement. These difficulties are made more serious by the fact that the legal system is slow to adopt change. It's a technology that has a lot of potentials, but there are still plenty of skeptics. To begin with, not everyone is a fan of transparency.
Even though smart contracts have drawbacks, they do not have to be abandoned. Its underlying technology can be enhanced and vulnerabilities fixed. While many people think smart contracts will play a significant role in the future, others have their doubts. How scalable this technology is will only become clear over time. over to you now. Do you intend to use smart contracts?