Contracts today are changing, and a new type of contract called a “smart contract” is becoming even more common. A smart contract is also known as a cryptocontract. Like a traditional contract, a smart contract dictates the rules and agreement but does so electronically, simplifying the overall transaction. Smart contracts are meant to increase efficiency, ensure reliability, and reduce costs for everyone involved. These contracts utilize blockchain technology, which has become popularized through bitcoin and other cryptocurrencies. One of the most common cryptocurrencies specially designed to handle smart contract is Ethereum. It can also be used to manage them on a global scale in a free and scalable manner.
Developers can write their own smart contracts with Ethereum, but the process is not entirely free-form. Like traditional contracts, a specific process needs to be followed to successfully create a smart contract. Smart contracts rely on quantifiable objectives, which are tasks that can be clearly defined without any ambiguity. The more clearly defined a task can be, the better it is suited for a smart contract.
Every task in a smart contract must be clearly defined because payments are made based upon whether or not these objectives have been accomplished. Since smart contracts do not require human interaction, it is essential that the completion of tasks can be identified without human interpretation. When smart contracts work correctly and are applied to the proper tasks, they are self-executing and self-enforcing.
For example, a contract that details how someone should write a book is probably not the best choice for a smart contract. Books can have any number of words and be put together in an infinite number of ways. Every author represents facts or concepts differently.
However Imagine if a smart contract were to be created for a machining company, with regard to a certain number of parts, with specific dimensions and properties, which were expected by a certain time, that contract would be able to be properly executed. A quantifiable, unambiguous outcome could be defined, and, if that outcome were not to be reached, the contract would not have been fulfilled, and so no payment would be given.
Just because a specific task wouldn't be useful for a smart contract doesn't mean that the entire business itself couldn't use smart contracts. In the previous example of writing a book, it's clear that creating a contract detailing a book's precise content wouldn't work. Creating a smart contract to ensure that a certain number of words is written in a certain amount of time, or that the process was to be carried through a certain number of drafts, on the other hand, might work. The number of words written and the number of drafts provided is easily quantifiable, in contrast to the variable content of the book itself.
Smart contracts require data to function correctly. The more data which available, the better a smart contract will be able to execute and enforce the needs of all parties. They can track information that would normally take a lot of human intervention and time to handle, such as arrival dates, fees, and duties paid, or modifications to a specific contract itself. At any point, it can stop execution if part of its pre-determined conditions is not met. Since that can be done without direct human action, this type of contract saves time, money, legal maneuvering, and headaches.
Applications of smart contracts can be wide-ranging across many industries, including manufacturing, finance, shipping, and many others. The concept is still quite new and not nearly as widespread as it could potentially be since blockchain and cryptocurrencies are not yet common within many industries.
These are becoming more and more common as time goes on, however, so it can likely be expected that smart contracts will become increasingly common as well. It's too early to tell if they will completely replace traditional contracts, but their efficiency and increased security may one day cause that to happen.
Since smart contracts are still so new, it's important to be connected with people who know how the contracts work, as well as how to put them together in a way that they can execute and enforce themselves adequately.
SteamChain has extensive experience in building smart contracts and putting together the features which dynamic businesses need to be included in those contracts. Through SteamChain, contracts can include warranties, service agreements, financing, and much, much more. Contracts can also contain customized features which are unique to a client's specific needs and can grow as business increases.