Smart contracts
Definition
A smart contract is a self-executing program that writes the terms and rules of a contract directly into the code. These contracts run on a blockchain and automatically execute the agreements as soon as the defined conditions are met.
Background
Smart contracts were first proposed by computer scientist Nick Szabo in the 1990s, but their practical application became possible with the introduction of blockchain technologies such as Ethereum. These digital contracts eliminate the need for intermediaries as they run on a decentralized platform that prevents manipulation.
Areas of application
Smart contracts are used in various areas, including financial services, real estate, supply chain management, and insurance. Companies use them to automate processes, reduce costs and increase transparency.
Benefits
- automation: Processes are executed automatically as soon as the conditions are met, which minimizes human errors.
- Cost reduction: By eliminating intermediaries, costs can be significantly reduced.
- rapidity: Transactions and contract execution take place in real time.
- Transparency and safety: Blockchain technology ensures transparency and immutability of contracts.
Challenges
- Legal uncertainty: Since smart contracts are a relatively new concept, there is still no clear legal framework in many jurisdictions.
- Technological complexity: Implementation requires technical expertise and can be complex.
- scalability: Current blockchain technologies are reaching limits when it comes to processing large amounts of data.
Examples
A company could use a self-service portal to implement smart contracts to automate payments and deliveries in the supply chain. As soon as a product has been delivered and receipt has been confirmed, payment is automatically triggered by the smart contract, making the process more efficient and secure.
Summary
Smart contracts are revolutionizing the way contracts are concluded and executed by offering automation, cost reduction, and security. Despite existing challenges, particularly in legal terms and in terms of scalability, they offer significant benefits for industrial companies.