Smart contracts are computer programs that execute automatically and efficiently in the background under certain conditions. Smart contracts build decentralized applications (dApps) and run them without downtime, censorship, fraud or third-party interference. They even have the potential to drive revenue from a business’s existing operations or to generate new ones through the automation of business processes. Blockchain technology is often used as a foundation for developing dApps.
However, its use cases are vast and its potential uses are almost endless. Today, businesses of all sizes and industry sectors leverage digital platforms like Facebook and Twitter to connect with customers, vendors, employees and each other across time and space.
But as we’ve seen with the Facebook Cambridge Analytica scandal and the failure of their privacy controls, online platforms can be unreliable and lack sufficient control over user behavior. In this article, you will learn how smart contracts make it possible for any business to operate more efficiently by enabling businesses to run their own operations using a digital ledger system rather than relying on a company’s intermediaries or third parties.
You will also explore how they can be implemented in different industries so that your business is able to leverage its unique value proposition instead of being left behind in the digital revolution.
What is a Smart Contract?
A smart contract is a computer code that can self-execute when certain conditions are met. It can be software or a blockchain-based algorithm that automates a business process. When a party using a digital platform like Facebook signs an agreement, for example, a smart contract can be triggered that automatically sends money to the person’s account without the user having to take any action.
The agreement can be based on a fixed term or can automatically renew itself based on set rules. The advantage of smart contracts is that they don’t require a central party to execute. Instead, they rely on computers to do the heavy lifting, allowing them to run more efficiently and securely.
How Smart Contracts Work
Smart contracts work by automating a business process. They do this by bringing logic from two distinct areas together: the blockchain, which holds the data that triggers the smart contract, and the data held by an organization, which forms the basis for the decision-making process within the contract. For example, let’s say a company has a contract with a healthcare provider that calls for a visit from a doctor.
The contract can include a rule saying that the patient must be assessed for any medical conditions and a rule saying that the visit can only proceed if the patient is healthy.
With smart contracts, all of this can be recorded on the blockchain and the data can be verified and verified again using the blockchain’s built-in computer programing. The results of all this can then be available to all stakeholders, including potential future customers and employees, making it a breeze to exchange data and make business decisions using a single click.
Benefits of Using Smart Contracts
The business benefits of using smart contracts are almost endless. If a business incurs the cost of hosting an event in a hotel ballroom, it can trigger a smart contract that automatically sends the funds to the hotel’s account without having to lift a finger. The hotel can then use that money to pay for their room rate. Businesses can use smart contracts to automatically issue payments or securities for distributions or rewards for employees or for gifts for customers.
They can even use smart contracts to execute personalized rewards based on the movement of customers in a store, for example, or the completion of a certain task. Businesses can even integrate their smart contracts with machine learning to automate certain tasks such as customer onboarding, bill payment or stock-keeping.
With the right software, businesses can also automate the management of their operations. For example, let’s say a company owns seven stores and has a sales representative in every city. The representative has access to the planning and data management tools of the company, but he or she could also use smart contracts to automate the planning process.
These tools can also be integrated with accounting and financial management tools so that the representative doesn’t have to spend hours manually entering data.
3 Industries where Smart Contracts are Ideal
Smart contracts are ideal for industries where data is critical. Apart from being useful for validating data and reducing data entry errors, smart contracts can also be used to integrate data from other sources. Let’s say a business has data showing which departments see the most traffic and leads, for example. Using smart contracts, the data can be transferred to a third party and a decision made based on that data.
Businesses use digital platforms to connect with customers, vendors, employees and each other across time and space. However, as we’ve seen with the Facebook Cambridge Analytica scandal and the failure of their privacy controls, online platforms can be unreliable and lack sufficient control over user behavior. With smart contracts, businesses can build decentralized applications (dApps) and run them without downtime, censorship, fraud or third-party interference.
They even have the potential to drive revenue from a business’s existing operations or generate new ones through the automation of business processes.