Blockchain and Smart Contracts - Series - 23

 Blockchain and Smart Contracts

What are Smart contracts?

The conditions of an agreement are explicitly encoded into lines of code in a smart contract,

which is a self-executing contract. Because it runs on a blockchain, immutability, security, and

transparency are guaranteed.

Smart contracts eliminate the need for middlemen by automatically carrying out actions when 

specified  criteria are met. It has many features like executing actions automatically based on 

conditions, all  transactions being recorded on the blockchain and verified, and once 

deployed,  the code cannot be altered, Transactions are encrypted and tamper-proof, 

eliminating manual  processes and reducing errors.

Use of Smart Contracts in Real Life:

Automated Payments upon Delivery,

Payment for a cargo in escrow can be held in a smart contract. The smart contract 

automatically releases the money to the provider after the shipment arrives at its destination 

and is verified by the recipient. This lowers the possibility of late or non-payment and does 

away with the necessity for manual payment processing. For example, a smart contract could 

be programmed to release payment to a supplier only if a shipment passes a certain quality 

inspection. This helps to ensure that only high-quality products are delivered to customers.

Real-time Inventory Management,

Smart contracts can be used to track inventory levels in real time across the supply chain. 

When inventory levels fall below a certain threshold, the smart contract can automatically 

trigger a new order to be placed with a supplier. This helps to ensure that there is always 

enough inventory on hand to meet demand, while also minimizing the risk of overstocking.

Risk Management,

Smart contracts can be used to manage risk in the supply chain. For example, a smart 

contract could be used to insure a shipment against loss or damage. if the shipment is lost or 

damaged, the smart contract will automatically pay out the insurance claim to the supplier. 

These are just a few examples of how smart contracts can be used in real-life supply chain 

tracking and automated payments. As blockchain technology continues to develop, we can 

expect to see even more innovative uses of smart contracts in the supply chain.

1. Decentralized Finance (DeFi)

Lending and Borrowing Platforms, Platforms like Aave and Compound allow users to lend

and borrow cryptocurrencies without intermediaries. Smart contracts automate the lending

process, including interest calculations and loan repayments.

Decentralized Exchanges (DEXs), Platforms like Uniswap and Curve facilitate peer-to-peer

cryptocurrency trading. Smart contracts automate the exchange process, ensuring fair pricing

and secure transactions.

2. Healthcare

Clinical Trials, Smart contracts can manage patient data and payments in clinical trials,

ensuring data privacy and secure distribution of rewards.

Telemedicine, Smart contracts can facilitate secure and automated payments for telemedicine

services, ensuring that doctors and patients are fairly compensated.

3. Gaming

Non-Fungible Tokens (NFTs), Smart contracts are used to create and manage NFTs,

representing unique digital assets like artwork, collectibles, and in-game items.

Decentralized Autonomous Organizations (DAOs), DAOs can use smart contracts to

manage treasury funds, vote on proposals, and distribute rewards to community members.

What are Smart contracts?

Smart contracts are self-executing agreements with the terms of the contract directly written

into lines of code. These contracts run on blockchain networks, ensuring that they are secure,

transparent, and tamper-proof. Once the conditions encoded within the contract are met, the

smart contract automatically executes its terms without the need for any

intermediaries. Imagine a vending machine—you insert money, press a button for the item you

want, and the machine delivers it. There’s no need for a storekeeper to mediate the

transaction. Similarly, a smart contract operates autonomously. The programmed instructions

ensure that if certain conditions are fulfilled, predefined actions occur. 

For instance, in a rental

agreement facilitated by a smart contract, the contract might stipulate that a tenant’s access to

a property will be granted automatically when payment is made. Once the payment transaction

is verified on the blockchain, the digital key is released to the tenant without any human

intervention.

How Do Smart Contracts Work?

Code, the contract’s logic and rules are written in code and deployed onto the blockchain.

Conditions are predefined criteria that must be met to execute the contract.

Decentralized Execution, when conditions are satisfied, the blockchain validates the

transaction, and the smart contract executes automatically.

These contracts rely on the decentralized nature of blockchain to ensure trust. Every transaction and action is recorded on the blockchain, making it verifiable and immutable. 

Smart contracts remove the need for traditional intermediaries like banks, brokers, or lawyers, 

making processes more efficient and cost-effective. They also reduce the risk of errors and 

manipulation by ensuring that the code governs all transactions.

Advantages of Smart Contracts

Eliminating Intermediaries,

By removing middlemen such as banks or lawyers, smart contracts reduce transaction costs and

increase efficiency. Parties can interact directly with one another through the blockchain.

Transparency, All terms and transactions within the smart contract are visible to the involved 

parties and recorded on the blockchain. This ensures a high level of transparency and trust.

Automation,

The self-executing nature of smart contracts eliminates delays caused by manual intervention.

Transactions are completed instantly once the conditions are met.

Security,

Smart contracts leverage blockchain technology, which is inherently secure. Data is encrypted,

and the decentralized nature of the blockchain makes it highly resistant to tampering or

hacking.

Accuracy,

Because the terms are coded, human errors that may arise from traditional paperwork are

eliminated. This precision ensures the smooth and reliable execution of agreements.

Cost Savings,

By streamlining processes and reducing the reliance on intermediaries, smart contracts

significantly lower operational costs for businesses and individuals alike.

Self-Executing Contracts in Action

The defining feature of smart contracts is their ability to execute themselves without human

intervention. This removes the inefficiencies of traditional contract enforcement, such as 

delays caused by manual verification, negotiation, or disputes. Once programmed, the smart 

contract ensures that predefined conditions are strictly followed, providing a level of certainty 

and reliability unmatched by conventional agreements. 

Let’s consider a real-world example: escrow services in real estate transactions. In a 

traditional setup,  funds are held by a third-party escrow agent until conditions like property 

title transfer are met. With a smart contract, the entire process is automated. Funds are locked 

within the smart contract, and once the blockchain verifies that the title has been transferred, 

the contract releases the payment to the seller automatically. This automation reduces 

reliance on intermediaries, cuts transaction fees, and speeds up the process. It also 

minimizes the risk of fraud, as smart contracts are immutable once deployed.

How Smart Contracts Remove Intermediaries

Traditional agreements often require trusted third parties to facilitate transactions. For 

instance, Banks process payments, Lawyers draft and enforce contracts, and Escrow agents 

managefunds during sensitive transactions. Smart contracts eliminate these intermediaries by 

executingagreements directly between parties. Blockchain technology provides a trust 

mechanism, as it ensures that all parties adhere to the terms. The decentralized nature of 

blockchain also means that no single entity controls the contract, making it fair and impartial. 

For example, in supply chain management, a smart contract can automate payments to 

suppliers upon the successful delivery of goods. 

The contract monitors delivery status using IoT devices or blockchain-based

tracking systems. Once the delivery is confirmed, the payment is automatically released. This

reduces administrative overhead and ensures timely payments. The removal of intermediaries

also opens up opportunities for people in regions with limited access to traditional financial

services. Through smart contracts, individuals can engage in peer-to-peer transactions 

securely and efficiently without needing banks or brokers.

Challenges in Removing Intermediaries

Code Vulnerabilities, Bugs or errors in the smart contract’s code can lead to unintended

outcomes or exploitation by hackers.

Legal Uncertainty, many jurisdictions lack clear legal frameworks for smart contracts,

complicating dispute resolution.

Dependence on Oracles, Smart contracts often rely on external data sources (oracles) to 

verify conditions. If an oracle provides incorrect data, the contract may execute incorrectly.

Code Vulnerabilities, Bugs or errors in the smart contract’s code can lead to unintended

outcomes or exploitation by hackers.

Legal Uncertainty, many jurisdictions lack clear legal frameworks for smart contracts,

complicating dispute resolution.

Dependence on Oracles, Smart contracts often rely on external data sources (oracles) to 

verify conditions. If an oracle provides incorrect data, the contract may execute incorrectly.

...........................To be continued