According to Verified© Market Research, the Global “Smart Contract” market size is valued at USD 188.97 Million in the year 2022 and it is projected to rise to a grand value of USD 1,231.31 Million. Hold up! What is so mighty about smart contracts?

What are smart contracts?

According to IBM, “smart contracts are digital contracts stored on a blockchain that is automatically executed when predetermined terms and conditions are met”. Smart contracts are used to “automate” and “streamline” the execution of certain actions when set conditions are met. All these are done without the intervention of a third party (which might include a central authority, a legal framework, or an external enforcement mechanism) to authorize or initiate such conditions.

The concept of smart contracts was first proposed by Nick Szabo in 1994.

Source: X

How do smart contracts work?

Smart contracts involve an agreement between two parties - though it does not require the intervention of a third party. Technically, the following are the procedures through which a successful smart contract is initiated and executed:

Initiation of the terms and conditions

Contracts start with an agreement between the parties involved and it is not different with smart contracts. The parties involved in the transaction would agree on the terms and conditions of the contract as well as how they want the smart contract to work.

The code

After the terms and conditions of the agreement have been agreed upon, smart contracts are created with the knowledge of smart contract development. The terms are translated into smart contract programming language understood to create smart contracts (the contracts are often created in Solidity, Vyper, Yul)

Deployment

Once the smart contract has been created, they are deployed on the blockchain. The contract is then broadcasted to the blockchain with the smart contract code included in the transactions’ data field. The smart contract becomes “live” on the blockchain once a transaction is initiated and confirmed. After this, the transaction cannot be revoked, altered, or changed.

Contract in action

Smart contracts work by monitoring the blockchain for certain conditions/triggers. These include any virtual identity/event that can be digitally verified.

Execution and recording

When the trigger condition is satisfied, the corresponding smart contract is automatically executed. This is broadcasted immediately to the blockchain network, verified, executed, and stored on the same network.

Strengths and Weaknesses of Smart Contracts

No doubt, the smart contract makes processes easy on the blockchain. However, it has its strengths and weaknesses.

Below are the main strengths of smart contracts:

Impregnable framework: Smart contract programs are immutable and cannot be altered after they are deployed.
Accuracy and autonomy: Smart contracts are executed automatically with no human intervention. This eliminates the risk of human error in executing smart contracts.
Speed and efficiency: It also facilitates and speeds up contract execution.

Below are the weaknesses of smart contracts;

Permanence: Once deployed, smart contract codes cannot be changed even if there are mistakes.
Code deficiency: Since smart contracts rely on code written by programmers, any deficiency in the program can lead to a contract executed in bad faith.

In Africa…

Before diving into the benefits of smart contracts, let’s look into the case study of the practical use of smart contracts to trigger innovation and economic growth in a continent full of third-world countries - Africa.

AgriBlock

AgriBlock is a Ghanaian agro-company that is currently using smart contracts to connect farmers to buyers and lenders while tracking the movement of agricultural produce from farm to market. The AgriBlock platform allows farmers to track their crops and receive payments based on their performance.

Tanzania Blockchain Initiative (TBI)

TBI is a not-for-profit organization that is deeply invested in propagating the gospel of blockchain technology in Tanzania. They work with several companies in developing smart contract applications for a variety of industries to stimulate efficiency. They provide similar services as Africa Blockchain Alliance (ABA), Ghana Blockchain Developers Community, Evernym Technologies, and Tanzania Blockchain Lab.

Ennovate

Ennovate is a Nigerian fintech company that employs smart contracts to automate trade finance transactions and also allows businesses to secure finance for their trade deals.

Kenya Electricity Generating Company (KenGen)

KenGen uses smart contracts in managing its energy trading operations while helping to improve transparency and efficiency in the sector.

Meanwhile...

These are just a few companies in Africa that implement and use blockchain smart contracts to make lives easy in sub-Saharan Africa. The smart contract has been gaining credence in various industries. Beyond its present use case, the future of smart contracts is very bright and promising in Africa. This is due to its potential to simplify and streamline complex processes, increase the visibility and accessibility of various goods and services, and contribute to efficiency.