Hearing the word "contract" what comes to the mind 'to agree' or 'to partner'.

The idea of what Smart Contract is might not come to mind yet.

But , we'll attempt a comprehensive- yet concise enough-definition of Smart Contracts to capture their essence with highlighted key points.

-What are Smart Contracts

-How they work

-Use Cases (with illustrations and scenarios)

-Summary

WHAT ARE SMART CONTRACTS.

A Smart Contract is an agreement between 2 or more persons in form of a computer code 'Cryptography'. Smart Contracts run on the Blockchain Technology, so they are stored on the public database and cannot be altered or replaced.

The transactions that happen in a smart contract are processed by the blockchain, and are self executed automatically when the conditions in the agreements are met, so there are no trust issues.

HOW THEY WORK

Smart Contracts are pretty basic and can be compared to the traditional means of doing business, but without a 'third party' in this case.

Understanding how it works hinges on knowing how they can be used.

ILLUSTRATION:

Imagine Dumebi who is an art collector attended an art exhibition and saw a captivating art for sale owned by Ade and he decides to purchase the piece. This agreement is formed on a blockchain using a smart contract. The smart contract contains the terms of sales and both agreed upon by Dumebi and Ade.

Once the agreement is finalize, it cannot be undone hence Dumebi can feel safe to Pay Ade for Art in the native currency of the smart contract's blockchain. It cuts off the use of middleman, extra commissions and no more delays of waiting for a lawyer and broker to process an agreement.

This is just a typical example of how it works in real life scenario.

With the Blockchain technology, we are able decentralize the smart contracts so they remain fair and trustless (not controlled by one Central system/entity like a bank, broker and even the government, etc.)

The blockchain is a shared database run by many computers (known as "nodes")

belonging to many different people: hence, not one single person or company has control of it. This makes it near impossible to hack it-the attacker would need to hack more than half (known as the 51%attack) of all the nodes to successfully attack the Blockchain or the smart contract running on it.

Therefore, Smart contracts are able to run safely and automatically without dubious human intervention.

'image describing how the smart contracts works'.

USE CASES

Smart Contracts can be used for any type of transaction- it works outside the financial field too.

The possibilities are endless.

Besides financial trades and services, they're already being used for insurance, credit authorization, legal processes, and even for crowdfunding agreements (ICOs).

1. Insurance

In Insurance, Smart Contracts have been used to automate claims that would otherwise have undergone manual request and verification protocols like compensating airline customers for delayed flights.

Let's use this scenario:

OYIZA 's Insurance policy requires her to be compensated with 100 USD anytime her flights were ever delayed. She sends her 30 USD travel fee to the Smart contract and provides her flight data, then her Insurance company tops up that amount with 70 USD in the smart contract, to ensure she gets the 100 USD, should her flight be delayed.

If OYIZA ’s flight is on-time, her Insurance is sent 100 USD from the smart contract. But if the plane is late, 100 USD is sent to OYIZA from the smart contract. Everything is easy deployed.

This saves lots of time and money. It also means that OYIZA does not have to doubt that her Insurance broker will pay her the agreed amount if her flight is late — she knows that if it is late, the Smart contract will instantly send her the agreed compensation.

2. In Healthcare services

Smart contracts can be used to record and safely transfer data. There's an application that uses smart contracts to transfer patient data in a secure way, allowing no access from third parties.

This way, the patients are in control of their own medical data. If researchers want to use patient data, they must pay for it. Not only that, but the patient has to choose whether or not they want to sell it to them.

3. In Government

Smart contracts running on the Blockchain can make voting systems completely trustless and much more secure. There are applications that use smart contracts and blockchain technology to protect votes from fraud. When the voting transaction is written to the blockchain, it cannot be changed. As soon as the voting is over, the Smart contract will send a token to an address that represents the winner of the vote.

This way, voting is always fair, meaning the winner is always correct.

4. In Business

In Business Management, you can benefit massively from smart contracts. Instead of paying staff to run payrolls, they can use smart contracts.

Businesses can just set up a smart contract that says WHEN the date is 31.11.2023, the Business sends OYIZA 2 USD. This means OYIZA will always be paid on time, and he will never be underpaid. The business benefits because it is all automated, saving them lots of time and money.

5.Crowdfunding

- Crowdfunding (like ICOs, IDOs)can use Smart Contracts to raise money for the project in exchange for the project's Tokens. A developer creates a smart contract and a token for it.

When the project's enthusiast contributes any amount towards funding the project, he/she gets the amount of token commensurate to her contribution based on the token value written into the Smart Contract code by the project team.

You put $A to get B amount of tokens, it's pretty automatic. When the project successfully launches and appreciates, your cheaply bought tokens makes you a fortune, or causes you great loss if a negative outcome were to be the case.

For example, Ethereum was also originally funded through an ICO, which took place in 2014. Buyers received ether in exchange for bitcoin, and more than 7 million Ether was sold in the first 12 hours of the sale, worth approximately $2.2 million at the time. It could be way more flexible with smart contract

-SUMMARY

If smart contracts fulfill their purpose, perhaps we’ll one day live in a world that is free of 'middlemen'. As we can see from the scenarios being shared, smart contracts are already beginning to eliminate middlemen. We also saw the potential this has for future applications as with the case of Dumebi and Timothy.

Eliminating intermediaries is advantageous because it results in substantial cost savings. Additionally, relying on a trustless system removes the need to place trust in individuals. However, it's essential to consider the potential drawback: individuals employed as middlemen might face unemployment.