In the future, there will be no need to check whether the clauses of a contract have been fulfilled, keep all the conditions in memory, make an effort to read the fine print, or engage in endless discussions when two parties fail to agree on whether or not something has been done as previously stated.
Smart contracts promise to revolutionize the market: they are executed automatically and autonomously as long as the parties involved comply with the items listed therein, without the need for supervising intermediaries or competent authorities. There is no need for them to trust each other. They do not even need to know each other beforehand. All parties will know for the duration of the contract that it is sufficient that the events that need to happen are specified in the smart contract software along with the actions to be taken once they occur.
“Interpretation problems” are becoming a thing of the past. Smart contracts are nothing more than scripts, i.e. pieces of code written in programming languages. Unambiguous.
The importance of the oracle
Although they had already been described in 1985, smart contracts were not put into practice until 2009, when blockchain began to gain ground. The role of this technology is fundamental: it is what allows the contract to be transparent, impossible to modify, decentralized and reliable for all those involved.
There is an additional role in the world of smart contracts. Oracles are external sources of information agreed upon by all parties that provide the necessary data to corroborate compliance with the established clauses and thus enable the completion of the next steps. An oracle is not necessarily a human entity. It can be a financial system that updates a price that impacts a sales contract, or a carrier’s IoT solution that indicates when a shipment was delivered.
Concrete and potential use cases
Among the first concrete and potential use cases in which smart contracts are being applied are commercial transactions between companies located in different parts of the world, purchase and sale of properties or automobiles, relationship between insurance companies and their clients and, of course, transactions with cryptocurrencies. The link between virtual currencies and smart contracts has existed since the very birth of the former.
But their field of application does not stop there: new models of collaboration are appearing. Many people, for example, can buy a vacation home together and split the time of use. Or a group of users can share the ownership of a car. All of that can be reflected in smart contracts. It is also possible to automate inheritances, so that a legacy becomes effective as soon as the owner dies, establishing the division of assets without human intervention.
Even, taken to the extreme, a smart contract could be applied to a presidential ballot.
Smart benefits
The most important benefits of smart contracts are a considerable drop in costs and time due to the elimination of supervisory entities, a virtual elimination of potential friction between the parties, and the minimization of unintended errors or deliberate fraud during contract performance. In addition, unnecessary custody and bureaucracy are avoided since there are no intermediaries who could be interested parties.
In the immediate future, there will be no smarter way to reach an agreement than through a smart contract.