Smart Contract

Summary

A smart contract is self-executing code that carries out a set of instructions, which
are then verified on the blockchain. They are a core technological element of many
decentralized applications (dApps). A key characteristic of smart contracts is that
they are trustless, meaning they can reduce or even eliminate the need for third-
party intermediaries. Read on to learn how smart contracts are impacting the
worlds of finance, real estate, healthcare, gaming, and more.

 Introduction: What Are Smart Contracts?

 Smart Contract Use Cases in Finance

 NFTs and Smart Contracts: Blockchain Technology in Gaming

 Smart Contracts and Blockchain in the Legal Industry

 Blockchain in Real Estate

 Smart Contracts Uses in Corporate Structures: Building DAOs

 Applications of Smart Contracts in Emerging Technology

 Potential Smart Contract Advantages in Other Industries

 Introduction: What Are Smart Contracts?

Smart contracts are one of the key components of many blockchain-

based ecosystems, and an especially important element of many application-
focused blockchains like Ethereum. These digital contracts are trustless,
autonomous, decentralized, and transparent — and are usually irreversible and
unmodifiable once deployed. Smart contract advantages include reducing — or
even removing — the need for intermediaries and contract enforcement in an
agreement or transaction. That’s because with a smart contract, the code defines
the mechanisms of the transaction and is the final arbiter of the terms. For this
reason, smart contracts have become the building blocks of an entire ecosystem
of decentralized applications (dApps) and represent a major focal point of
blockchain development in general.
A solitary smart contract can only be used for one transaction type: If something
happens, then something else happens. However, most dApps work by bundling
smart contracts together to enable a sophisticated, synergistic set of functionalities.
There are thousands of dApps across various blockchain networks, including
finance, gaming, exchanges, and media — and they can all utilize smart contracts
in different ways and to different ends. Examples of smart contract applications
include financial purposes like trading, investing, lending, and borrowing. They
can be used for applications in gaming, healthcare, and real estate; and they can
even be used to configure entire corporate structures. In this article, we’ll cover
some of the real world examples of smart contracts and dApps, and explore their
potential to shape the future as well.

 Smart Contract Use Cases in Finance

Decentralized finance (DeFi) dApps represent a formidable alternative to

traditional financial services, and they are growing in popularity thanks to the
trustless, immutable, and transparent characteristics of blockchain and smart
contract technology. DeFi dApps provide parallel services to the banking and
financial services industry — like lending, borrowing, trading, and a host of other
financial services — along with entirely new types of products and decentralized
business models that can offer considerable benefit and utility for users. With the
increased transparency furnished by smart contracts (along with 24/7 functionality,
and reduced costs), dApps have the potential to lower the barriers to entry into the
financial services arena for people all over the world.

DeFi projects have already captured billions of U.S. dollars in value and look to
continue this trend as more and more people become familiar with the unique value
propositions of the sector. Users can participate in this new generation of financial
services without the need for centralized custody or fees from intermediaries.
Although the DeFi sector is only a few years old, given the number of innovative
dApps that are already providing value and utility to consumers, the effects of
smart-contract-powered dApps on the financial industry are already being felt.

 NFTs and Smart Contracts: Blockchain Technology in Gaming

The global gaming industry is a hundred-billion dollar ecosystem that continues to

grow quickly, but the way value is created and distributed throughout the industry
can be inequitable. Developers make and release games, and players pay to play
and interact with those games. This perpetuates a one-directional flow of value
where players spend money to unlock access to in-game assets and gameplay
configurations. In contrast, blockchain technology in gaming can enable players to
capture the utility and value of in-game purchases and asset acquisitions more
effectively.

Blockchain technology in gaming is commonly driven by non-fungible tokens

(NFTs) — unique digital assets that represent in-game content. NFTs rely on smart
contracts. These tokens are unique, rare, and indivisible, while the blockchain
networks that underpin NFTs facilitate player ownership, provable scarcity,
interoperability, and immutability. Together, these characteristics of blockchain in
gaming have the potential to drive mainstream adoption and a more equitable value
model.

Thanks to the implementation of blockchain technology in the gaming industry,

you can save in-game purchases, sell them to other players, or move them into
other supported games. Meanwhile, the scarcity of in-game NFT purchases is
provable through the immutable records embedded in an NFT’s underlying
blockchain network — as is its history of ownership. Because NFTs are unique and
can be designed to retain value beyond the game in which they originated,
blockchain-built games and dApps have the potential to expand gaming
economies, establish new gaming categories, and fuel development of new games.
Blockchains with significant gaming development
include Ethereum, TRON, EOSIO, and NEO. 

 Smart Contracts and Blockchain in the Legal Industry

Perhaps one of the most promising real world smart contract use cases is their
potential to function as legally binding contracts — the kind that inform most of
today’s business engagements. Technology has been driving innovation in the legal
industry, most recently with the advent of e-signatures for binding legal
agreements. Smart contracts represent another new development in this space, and
may soon be an option for parties to legal agreements, potentially lowering the
costs incurred from using lawyers and other intermediaries.

The widespread use of bespoke smart contracts for myriad types of transactions
that can lower costs and increase transaction speeds may be closer than you think.
Some U.S. states have begun to permit the use of smart contracts and blockchain in
the legal industry in certain contexts. For example, Arizona allows enforceable
legal agreements to be created via smart contracts, and California allows marriage
licenses to be issued via blockchain technology.

 Blockchain in Real Estate

Through tokenization, smart contracts are advancing the fractional ownership of

assets and thus lowering the barrier to entry for investment for many by merging
blockchain and real estate transactions. In particular, there have been a number of
successful endeavors in tokenizing real estate assets, including via platforms like
RealT and SolidBlock that fuse blockchain and real estate. Smart contract
technology can also rework the documentation and transaction processes by
incorporating blockchain in real estate transactions. For example, the Republic of
Georgia (in the Caucasus region) has been developing a blockchain-based land title
registry since 2016, and similar projects are underway in other jurisdictions such as
the United Arab Emirates (UAE).

Anyone who has purchased a home or other property is likely aware of the
potential for hidden costs connected to closing fees, title transfers, and broker fees.
These are costs that might be reduced or even eliminated by automatically
executing smart contracts that function free of intermediaries. When a piece of
property is tokenized, much of the required record-keeping can take place via
associated smart contracts, which can save the parties time and money. Some
experts even claim that smart contracts can benefit parties by streamlining rental
agreements and complex credit or mortgage agreements, as well as warranties and
insurance. By using smart contracts and blockchain in real estate, the need for legal
counsel or other advisory services becomes less crucial, potentially cutting costs
across the board.

 Smart Contracts Uses in Corporate Structures: Building DAOs

In 2017, Delaware passed Senate Bill 69, which allows businesses to be

incorporated and managed using blockchain technology. This bill opened the door
to the proliferation of decentralized autonomous organizations (DAOs), which
function as corporations wherein ownership and compensation can be built into
smart contracts. DAOs, using smart contracts to encode corporate structures, can
enable sophisticated, automatically enforced incentive structures within a corporate
framework. DAOs can also drive savings in administrative costs including office
space, hiring, and payroll through incentive structures that may not include formal
employment contracts.
 Applications of Smart Contracts in Emerging Technology

One of the most exciting applications of blockchain technology and associated

smart contract technology is the ability to facilitate complex computational tasks
like those involved in machine learning and artificial intelligence (AI). By
combining the data intensive processing of AI with the decentralized security and
immutability of blockchain technology, there is potential to create AI-powered
smart contracts. As smart contract applications become implemented across
various industries, they will need to become increasingly complex to accommodate
their new roles. While rudimentary smart contract use cases can be manually
designed, AI-enabled smart contracts might allow for the construction of highly
complex, more responsive, enterprise-grade smart contracts and dApps that have
the potential to dramatically expand the capabilities of the technology.

Many experts postulate that the fields of AI and blockchain may benefit from each
other’s defining characteristics. Smart contracts can benefit from the advanced
computational capabilities and adaptive systems of AI technology, while AI
implementations could utilize smart contract technology for its autonomous
execution of sets of rules and to provide a secure environment for sensitive and
valuable machine learning data to exist. Zilliqa is one of the many blockchain
platforms that is developing advanced computational capabilities with its
proprietary smart contract programming language, Scilla, and advanced parallel
processing structure enabled by sharding.

 Potential Smart Contract Advantages in Other Industries

This list of real world applications of smart contracts is by no means exhaustive,

and smart contract technology stands to improve upon countless other industries
far into the future. Many researchers and developers are eager to leverage the
benefits of smart contract technology to address needs of the growing Internet of
Things (IoT). While blockchain technology in general is already being used to lend
security and transparency to IoT devices, smart contract advantages may further
this integration.

Healthcare is another industry that has begun to integrate blockchain technology

for secure, trustless, transparent data sharing. The relationship between healthcare
and blockchain technology may also be bolstered by the integration of smart
contracts and entire dApps designed to solve key healthcare pain points such as
interoperability, identification, and authentication challenges. With all of these
established use cases, and the ongoing discovery and development of many more,
smart contracts and dApps are poised to continue revolutionizing the world of
digital agreements.