Maybe you have no interest in encryption technologies at all, but you need them anyway. Let’s take the simplest example. Imagine you are the parents of a minor daughter. She was invited to a disco by a friend. But you don’t have your daughter under your watchful eye 24 hours a day, and you don’t want to destroy your relationship with your daughter. However, you want to make sure that she does not enter any dubious businesses and that no alcoholic drinks are sold to your daughter before she reaches the age of majority. Are there any guarantees in such a case? Yes, there is a guarantee, even if you can hardly imagine it.
A Smart Contract can be used to ensure that facial recognition can prove that the girl is of age. Scanning the plastic card at the reader is enough. And apart from the age, no other data is released to the public. Neither the disco visitors nor the staff find out her name or where her address can be found. Life is much safer this way, isn’t it? And with an identity verification system based on the blockchain, it’s doable.
Now that we’re clear on what smart contracts technology is good for, let’s learn how it works.
What are smart contracts?
Let us introduce you to Nick Szabo. He is a cryptographer, studies computer science and practices law. From time to time there are rumours that he hides behind the name Satoshi Nakamoto. Satoshi Nakamoto is the founder of the blockchain and bitcoin. Even if you don’t believe the rumours, Nick Szabo is a legendary figure. In the nineties, before the existence of the Blockchain, he was the inventor of the technical term „SmartContract“ and a function that would enable the fulfilment of contracts.
Szabo likes to use the example of a drinks machine to explain his idea. You perform an action – you put money in. The vending machine donates the drinks and the change.
The vending machine can take the place of the cashier, because the scheme is simple and repeats itself several times. A machine makes no mistakes, is corrupt and never tires. Nick Szabo believes that in areas where we traditionally turn to lawyers and accountants, the use of vending machine type functions is possible.
How does the whole thing work?
Comparable to the functions of a normal computer is the principle of using a smart contract. A large public blockchain like Bitcoin can be used as the operating system that stores all the data and protects it from manipulation. A smart contract is like a computer application that is programmed exactly to suit my needs. Certain transactions can be allowed, others can be blocked, notifications can be sent, etc.
Public cloud platforms and settings offers a Blockchain Service (BaaS). This means that business people and top managers will be able to develop their own smart contracts that meet their own needs to fulfil a specific contract.
There are no privileges, no personal interference, no superfluous actions. They can simply substitute one product for another, but the blockchain guarantees that the interests of both parties are protected. In this way, smart contracts lead us to an exchange on an equal footing, without an intermediary intervening in the trading space.
And what will change as a result?
Okay, smart contract technology works, it helps us save time, it helps us do away with middlemen when we make contracts, and it ensures that all data is stored securely and is true. But you have the right to ask the question, „What is the benefit for me?“ Let’s take a look at what the universal use of smart contracts changes for each individual user.
Identification
Do you have any idea how a smart contract could be used to deny an underage child access to a nightclub? It is not surprising that all other private data remains hidden. You just have to remember that the blockchain is the operating system and a smart contract is just an application of that operating system. This means that it only gets to see what it can access. And the blockchain is responsible for storing all data and ensuring its authenticity.
This means that all information about a person can be stored on the blockchain, but via the smart contract, a doctor only gets the patient’s data, while someone else only gets the land registry data, for example, if he wants to sell his flat.
Together with a guarantee for the authenticity of the data, it is clear that in the future one will no longer have to rely on certificates from authorities. And when one buys a car or a property, one will simply have all the necessary information about who owns it, and nothing more will be needed.
The archive
Imagine you are on your way to the notary looking for a power of attorney that was issued four years ago to check whether it is still valid. Imagine that you find the power of attorney while searching for it. Another notary can pick up the power of attorney document. And imagine how many years it would take to sort and digitise all the paperwork from a notary’s office. And how many unintentional mistakes happen in the process!
But that is no longer necessary in this day and age. With a Smart Contract, all papers are digitised, the data is automatically updated and deleted when it expires.
Digital property
There was a time when people still paid with gold coins. People distrusted banknotes and promissory notes. Today, it is no longer unusual to have one’s savings invested in cryptocurrencies rather than euros or dollars. And yet almost everyone is aware that banknotes could soon become as scarce as gold coins.
But the idea of using cryptocurrencies instead of dollars is not so new anymore. The issuance of crypto-securities is made possible by smart contract technology. On the blockchain, we can hedge the shares of any company. For example, we can buy a quarter of a share and automatically stop the dividend payment.
We are not dreamers about the future. Crypto-signatures for shares are already offered by the American company Symbiont. This initiative to legalise crypto-securities is supported by the government of Delaware, the state where the company is based.
Loans and mortgages
If you have ever taken out a loan or mortgage from a bank, you know how complicated and lengthy the process is. The processing of the application, the approval, the signature – all this is still done manually and therefore takes a lot of time. And during this time, you don’t know whether you will get a loan or not.
With smart contracts, every step of the transaction can be automated, including the procedures for payments and collateral. This would make closing a loan or mortgage deal much faster and more efficient. Even more importantly, it would speed up the transfer of title to land and real estate and protect the parties from fraud. The prerequisite for this, however, is the use of the blockchain by the parties.
Motor insurance
Can you imagine a world where you feel safe because you can report the claim immediately and the processing and payment of compensation is almost instantaneous?
Sensors installed in the car determine and assess the severity of the damage. Since the smart contract sends the data directly to the blockchain, this data is not challenged.
Perhaps this is the most anticipated innovation, and drivers who have been hobbled for a long time will be the first to vote for the use of smart contracts.
The world will become more peaceful and secure if smart contracts are used in other areas. These include clinical trials, logistics, scientific research and economic regulation. The end result will be new medicines and treatments. New technologies and better framework conditions for small and medium-sized enterprises will emerge.
All this will lead to an improvement in the quality of life of many people. For a start, however, it is enough for smart contracts to help in everyday life by reducing the duration of processes from weeks to minutes.