Blockchain technology emerged through cryptocurrencies, but it has proven to have numerous applications thanks to its effectiveness in managing trust between stakeholders and, above all, the data protection, transparency and authentication it provides.
For example, Walmart uses Blockchain in its supply chain to monitor the safety of its food transportation. Both in the supply chain and in the application to other sectors, the aim is to establish trust relationships quickly and effectively between all participants. Therefore, relying on the algorithms involved in the Blockchain is well suited to this aspect, allowing trust to function in both the legal and the financial aspects, as well as in the validation of transactions.
At this point, Blockchain-based Smart Contracts come into play. These are self-executing contracts that contain the terms and conditions of an agreement written in code. The contract is executed on a decentralised platform such as Ethereum. Primarily, the programming languages used to write Smart Contracts are solidity and serpent, which allow developers to verify the program at runtime, rather than compile time.
Currently, the global Smart Contracts market is expected to reach approximately USD 300 million by the end of 2023 at a 32% CAGR during the forecast period of 2017 to 2023.
What is a Smart Contract and how does it work?
Smart Contracts refer to computer protocols that facilitate the digital verification, control and execution of an agreement. Blockchain platforms are responsible for processing all the transactions of such a contract, so that no intermediaries are required for it to be effective.
The components of the contract are called objects and there are three within a Smart Contract. Firstly, the signatories which refer to the parties involved in the contracts using digital signatures to accept the terms, which in turn the specific terms are another object and the object of the contract itself.
The operation is similar to other transfers on the Blockchain. A user initiates a transaction from a Blockchain wallet, this reaches the distributed database where his or her identity will be confirmed. Once approved, the transaction includes the code that defines what type of transaction should be executed and is then added as a block within the Blockchain. In case an update is required, any change in the state of the contract follows the same process.
Smart Contracts can be used for the creation of digital tokens for transactions. Ethereum allows the creation of its own digital currency by creating a tradable computerised token, using ERC 2.0 standardisations, which make it easy for the contract to access any wallet to exchange currencies automatically. In other words, the platform where the Smart Contract is made becomes a central bank that issues digital money.
For example, a Smart Contract can be created to hold a contributor’s funds until a certain date passes or a target is met. Depending on the results obtained, the funds will be handed over to the owners or returned to the contributors.
Smart Contracts frameworks and applications
Currently, there are several Smart Contracts frameworks and applications developed in different implementation domains such as supply chain management, IoT, software testing, cybersecurity and geographic information systems. Some of the applications that have taken place are:
eGOV-DAO is a Smart Contract framework that is used to provide Government e-services with a fully automated and efficient system that is integrated to provide transparent services. This framework works in real time to monitor and analyse the services provided by the government and provides better management of national resources.
The system maintains all audit trails in a transparent manner with the parties involved, creating convenience for the users of the framework. Traditional government contracting is inefficient when it requires a lot of interaction between institutions and involves the human factor.
Smart contracts are a solution for transparency and reliability of processes, while reducing costs and simplifying operations. Thus, eGOV-DAO is a Blockchain framework of a generic nature that can be applied to any policy for government contracts.
The Virtual Operation Model has a Smart Contracts framework implemented in the supply chain domain and includes a rescheduling procedure, combining planning and adaptive decision methods that are integrated with dynamic control theory.
In addition, it features the implementation of physical operations in the initiation and delivery of online information services. The model provides supply chain information storage and usage services, including assignments, sequence of operations and protocol. The virtual operation model together with Smart Contracts are fundamental to supply chain integrated scheduling control.
The weakness of IoTs in relation to their scalability and security sometimes requires intervention from external devices. However, edge security has found the solution for large-scale cloud computing. Blockchain and smart contracts are solutions in the development of these devices and edge computing.
Edge Chain has emerged as a solution to the problems of scalability and security, although it is only a prototype for now, Edge Chain is based on the integration of Blockchain with a coin system connected to the Edge cloud resource pool, resource usage and behaviour of IoT devices, implemented in a credit-based resource management system that aims to control all devices from the main server. The technology works with pre-determined priority rules that include the behaviour of each application. Smart Contracts are used to create rules and policies for each device to implement automatically.
Benefits of using Smart Contracts
One of the main benefits of using these smart contracts is their speed, efficiency and accuracy, as once one of the conditions is met the contract is automatically executed, no time is needed to process the paperwork or analyse the errors that tend to occur when the contract is manual. Also, because there are no third parties involved and the records are encrypted, the information is reliable and transparent as the contracts are not altered for personal gain.
On the other hand, the security it offers is fundamental as Blockchain transactions are encrypted and make cyber-attacks more difficult. Records are linked to previous and subsequent records, and it would be necessary for cyber attackers to alter the entire chain to change a single record, which is a difficult task. Obviously, all these aspects lead to financial savings because it eliminates the need for intermediaries, delays and associated fees associated with traditional contracts.
Conclusions
The option of using the Blockchain and Smart Contracts is a new way to innovate in the management of companies and governments. The concept of smart contracts refers to a Blockchain-enforceable contract characterised by automatic execution, scheduling and optimisation. In other words, these self-executing contracts imply that when the terms of the contract are fulfilled, actions that have been agreed upon in the contract take place. Thus, when a previously established condition is realised, the Smart Contract detects it and automatically executes it to the corresponding clause.
These contracts use the Blockchain to replace third parties in the management of supply chains, in governments and in different contracts involving different companies. The result means that management is much easier and less costly for all parties involved, ensuring that all terms are defined and executed.
The aspect of introducing Smart Contracts within the current digitisation will result in better business ecosystems and fairer sharing of returns between the main companies, facilitating communication between all parties and better quality of contract outcomes.
Looking to the future, existing models should be improved by introducing tokenisation systems to facilitate transactions and the definition of payment methods, making it easier for parties making a large upfront investment to earn profits.
