One of the most promising innovations in the blockchain industry is the smart contract. They provide a superior alternative to traditional contracts because there’s no need for a third party to enforce the terms. Instead, everything is done through code, with smart contracts programmed to execute automatically only when certain, specified conditions are met.
From simple payments to complex, multi-step, and multi-party transactions, smart contracts enable more independence by removing the middleman. With traditional contracts, a third party such as the government or courts will get involved whenever there’s a dispute. Third parties often play a role in creating the contract too. The downside, of course, is that the middleman always insists on taking a cut of the deal.
With automated smart contracts, the need for these third parties is eliminated. It means that smart contracts are more streamlined and cost-effective for the individual parties involved in any transaction. It’s no surprise that multiple industries are beginning to recognize the benefits of smart contracts. In terms of real-world examples, we have already seen dozens of different use cases for smart contracts evolve.
Enforcing Royalty Payments
In the music industry, emerging artists often have to rely on the income they get from fans who stream their music. With smart contracts, enforcing these royalty payments becomes much easier. Smart contracts can define what percentage of the royalty income is received by the artist and their record label and will enforce this each time someone downloads one of their songs.
A good example of this in practice is Tune.fm, which has built a tokenized music economy that ensures artists are paid in crypto directly for every second someone streams one of their tracks. Smart contracts will record the exact length of time someone listens to the song and then automatically pay the artist in JAM tokens.
Supply Chain Management
Self-enforcing contracts can operate autonomously, and that makes them especially useful for tasks like supply chain management. For instance, when a product or component is delivered to its intended destination, be it a factory, warehouse, or store, it will trigger a pre-agreed escalation clause and record this delivery onto an immutable blockchain.
An Australian startup called Datahash is doing exactly this for the country’s agricultural supply chain. It’s built on the Hedera Consensus Service that tracks products from one location to another and is designed to automate supply chain operations and prevent fraud that costs the Australian wine industry around $3 billion a year. Each time a delivery is made, a smart contract records it has happened, making it possible to trace each bottle of wine from the store shelf back to the vineyard where it was produced.
A fit and healthy population is essential for any economy, and so there are lots of good reasons to want to motivate people to keep fit. This is the goal of Sweat Economy, creator of the move-to-earn application Sweatcoin, which uses smart contracts to facilitate the transfer of rewards to users based on how many steps they take each day.
The Sweatcoin app is linked to a fitness tracking app such as Google Fit, which tracks the user’s number of steps. This movement is then validated by an “oracle” before passing on a message confirming the user has taken the required number of steps to the smart contract. This triggers the smart contract to calculate the exact amount of Sweat coins the user is due, then transfer them to their wallet. In this way, Sweat Economy is uniquely able to incentivize people to keep fit with financial rewards.
Real Estate Ownership
Smart contracts are also helping to improve the real estate industry in various ways, such as through streamlined transactions and fractional ownership. Rather than having just one person own a house, the ownership of that property can be segmented based on the number of tokens someone holds. So whoever owns tokens also owns a percentage of the related property. It enables micro-investing in real estate for the first time.
Transactions can also be performed through smart contracts. Once payment is made in crypto, the digital record of ownership for the property in question will automatically transfer to the wallet that paid for it and be recorded onto the blockchain. A startup called Propy facilitated the first-ever smart contract-powered real estate transaction back in 2017 when an apartment was sold for $60,000 worth of ETH. That same house was later transformed into an NFT and sold again for $93,000 in 2021.
The requirement to constantly show a government-issued identity document when signing up for a new service could one day be eliminated by smart contracts. It’s possible to store such documents on a blockchain in an encrypted way, which also has the benefit of preserving user privacy while still validating their identity. When a user signs up for a new service, counterparties can use smart contracts to validate the individual without requesting their documentation.
This technology can even evolve to cover things like credit scores, enabling lenders to assess risk in a decentralized way. MyEarth ID is a good example of a decentralized identity platform, enabling users to retain control over their identity data while verifying it securely with trusted third parties.
Democracy itself can benefit from smart contracts, which create a secure environment for public voting that reduces the risk of fraud. In such a system, each vote is recorded by a smart contract and encrypted to ensure the privacy of the voter. While smart contracts have yet to be used in government elections, they’re often employed by decentralized autonomous organizations that allow for community governance.
If employed by a nation-state, it’s quite possible that smart contracts could increase voter turnout in national elections. Because the entire system is online, it would eliminate the need for voters to travel to a polling station to make their vote.
Smart Contracts Are The Future
For now, traditional pen and paper-based contracts remain a lot more commonplace than their automated counterparts. Old habits die hard, after all. But it’s clear enough that smart contracts have incredible potential to streamline almost any kind of transaction, making them proceed more smoothly and with lower costs.
It’s for this reason that companies and governments alike continue to experiment with potential use cases for smart contracts. They may not fully replace pen and paper, but they’ll surely become far more commonplace.