In the recent past, the mention of Blockchain technology has become synonymous with most business solutions. Blockchain is quite an interesting subject among businesses and various industry players.
Form payment systems, document and workflow management, and contract drawing and execution with smart contracts.
In times where trusting people is almost foreign, this new technology brings a promise of trustless, transparent, secure, quick, and cheaper ways of drawing and executing contracts in different sectors. Smart contracts also eliminate intermediaries or third parties in the contract process.
What Is a Smart Contract?
These are automated digital contracts between parties’ a contract creator and a recipient. They’re written in code on the blockchain, which makes them irreversible and immutable.
They use the if/else conditional function. Most smart contracts are built on the Ethereum blockchain—look at Ethereum smart contract explained here.
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Among the most notable benefits of blockchain solutions is the automation of tasks and processes that would otherwise require an intermediary.
For instance, instead of having a bank (third party) approve the transfer of funds from a client to a service provider, the process is automated through smart contracts. All that’s needed in that case is for the two parties to agree to the terms and conditions set.
However, if something goes wrong and one party fails to accept or perform their obligations under the contract, the contract automatically stops, and there’s no exchange of assets. This ensures that there are no losses incurred to either party if they fail to agree.
Smart contracts have been used in various sectors such as insurance, banking, supply chain, digital identity, and many more.
Considerations Before Developing Smart Contracts
Smart contracts have a variety of uses in business, and you can benefit considerably by incorporating them. However, there are a few things you need to know before you start developing smart contracts for your business. Here’s are five of them:
The End Goal of the Smart Contract
Smart contracts are developed on the blockchain, and the mode of payment is digital currencies. Ask yourself how that will fit into your business. If you are already using another blockchain-driven solution in your business, the answer is quite straightforward.
However, if you have no idea how blockchain works, you’ll be better learning a thing or two before you consider developing smart contracts.
Look at the Limitations of Smart Contracts
If you’ve decided from the previous point that you need to go ahead with developing smart contracts for your business, you need to know their benefits, drawbacks, and limitations. Here is what you need to consider:
- You can only apply the contracts on things that are entirely executed on a digital platform. As it is, blockchain is a decentralized system and unregulated by any authority. You need to keep matters that need involvement outside the digital space from these contracts.
- Smart contracts operate on predetermined rules which they solely rely on to execute contracts.
- Contracts may sometimes require variation, but the execution in smart contracts is conditional following if-then, if-else form. This limits input of other variations that a contract may require.
As with any other business process, smart contract development requires proper planning. It’s essential that you first understand what action you want the smart contract to perform.
It could be a contract for payment verifications, transfer of payments to suppliers, and such. You can look at other similar developments in the market and platforms they are built on, whether Ethereum, Polkadot, Stellar, or bitcoin contract.
Source for a Reputable Developer
Your smart contract’s developer choice is a crucial part of the success of the project. Ensure that the developer knows the nuances of blockchain, has the experience and has a good track record doing similar projects.
Test It Thoroughly
Research carried out has shown that a large number of smart contracts are vulnerable to cyberattacks. This makes testing your smart contract crucial to ensure that there are no gaps that hackers might exploit.
Your development company can do a smart contract audit. Any loophole can increase your chances of suffering an attack, resulting in loss of resources, customer funds, and a tainted reputation.
Testing the smart contract thoroughly can identify bugs and remedy the issue before it becomes a security concern for your business and customers.
Smart contracts can be used in various industries and can be implemented in numerous ways. Today, there are many business problems, big and small, that you can solve with smart contracts.
However, as with any other technology, smart contracts are not perfect solutions. They have some imperfections as well.
The first is that the code is written by a human and therefore prone to error. There are also issues on how governments can regulate smart contracts, especially in terms of things like government taxes.
The answers lie somewhere in the future as blockchain technology grows and maybe becomes a mainstream technology for business processes.