What is a Smart Contract?
Blockchain for Business Video Series
Blockchain for Business serves to educate business professionals on the various benefits of blockchain technology, and how it can be utilized effectively in their industry. What is a smart contract, and how is blockchain utilized through these forms of agreement? Smart contracts not only expedite the various avenues of exchange in a contractual setting, but offer security and validation through blockchain technology.
Expedited Contractual Processing
As we saw in Video Three of our four part series, blockchain technology can be used to eliminate the intermediaries present in many dynamic industries. This allows for a more efficient flow of data, and significantly mitigates error within intercommunication based operations.
In today’s paper based world, a contractual process usually involves multiple intermediaries to achieve the desired result. However, through a smart contract, multiple parties would have the ability to communicate efficiently, directly and securely. A smart contract is a software code that is put on the blockchain, which defines the parameters of an agreement between multiple parties. Through smart contracts, avenues of exchange between two parties are governed by a set of validation measures, security protocol and monitored communication.
In this segment, Director Matthew DiBona explains how a smart contract can be used to purchase a vehicle.
A smart contract is simply a software code that is put on the blockchain, which defines the parameters of an agreement between multiple parties. The interesting thing about smart contracts is they automatically execute and enforce accordingly if these rules are not satisfied. To help explain, let’s talk about this in terms of how a smart contract could be used to buy a car.
In today’s paper based world, you have a buyer, a seller, and usually an intermediary. The dealer is involved in facilitating the contract and getting signatures from both sides, while a vehicle registration authority ensures the title of this vehicle is transferred from the seller to the buyer.
In the blockchain world, a buyer would have the ability to issue a smart contract, which basically states that they would like to buy a specific vehicle for a specific price. They would then provide their wallet ID, or unique blockchain account information to proceed. From there, a seller would be able to see the buyers need for that particular vehicle at the going price, and have the option to satisfy the smart contract by providing their wallet address. The blockchain and smart contract would then validate if Bob, (our buyer example) has enough money to purchase a car from Sally (our seller example), while also validating that Sally actually has a car to sell.
From here, the smart contract not only validates the transfer of the digital ownership from Sally to Bob, but could also move the financial assets between both parties. The smart contract not only transfers the vehicle digitally between both parties, but also moves digital currency from the buyer to the seller, representing both of those transactions immutably on the blockchain network. A smart contract could then communicate to the registration authority that the title of this vehicle needs to be transferred accordingly. All of these activities that currently require middlemen and intermediaries to facilitate can now be dis-intermediated, in effect rendering them useless because of the digital nature of the smart contract.
Beyond the transfer of assets and currency between two parties, another benefit of using a smart contract on blockchain to facilitate this process is that the ownership of the vehicle is immutable. If someone tried to steal said vehicle and pass it off as their own, another party could look into the blockchain and see that Steve (our thief example) does not own this vehicle, Bob does. Therefore, not only is the clearing and settlement automated during this transaction, but the ownership remains undisputed.
Keep Watching: How does blockchain work?
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