Smart contracts are becoming more popular as an alternative to traditional contracts. Learn more about smart contracts and their impact on many industries. Smart contracts are becoming an increasingly popular alternative to traditional contracts for businesses that want to automate the execution of agreements. It is designed to reduce the manual administration required for enforcement, arbitration, and intermediation.
Global smart contracts market will reach $770 million by 2028 (up from $145 million in 2020) (24.6% CAGR). This represents a growing opportunity to managed services providers as well as other tech companies. Here’s a detailed explanation of smart contracts, their benefits and challenges, as well as answers to most frequently asked questions.
What is a Smart Contract and how does it work?
A smart contract is a contract written using blockchain code that executes automatically when certain conditions are met.
To understand what a smart agreement is, you must first understand its legal definition. A contract is simply an offer to make something of value to another party. The second party accepts the offer and agrees that they will provide something in return. To make a contract legally binding, it must have the following:
A meeting of the minds
Acceptance and offer
Exchange of consideration (something valuable)
Capacity (each party must have the mental capacity to choose to enter into an agreement).
The United States has no federal contract statute. Contract law is governed by the state laws. However, there are model laws that have been adopted by many states. These laws include the Uniform Criminal Code (UCC), and the Statute Of Frauds. Many states also have laws that allow electronic signatures to be included in contracts. These laws include the Uniform Electronic Transactions Act (UETA), and the Electronic Signatures Recording Act(E-Sign). All contracts must conform to the laws of the state where they were written, or the specific state that is governing.
Arizona, Illinois, and Tennessee have laws that make smart contracts enforceable. These laws are also in force in other states.
Examples of Smart Contracts and Blockchain Use
Perhaps you are familiar with blockchain technology. If not, the CompTIA Blockchain Advisory Council has created a glossary for beginners. A vending machine is the most basic example of a smart-contract. Consider:
The offer: If the machine gives me a snack, I’ll deposit money in the machine.
The consideration: The money that is deposited into a machine
The machine accepts the money and delivers the snack.
All of this is done electronically without the need for any English language documents to direct the parties.
Many industries are now using blockchains, especially those that have a supply chain. These include:
Oil and gas
Distribution of food
Distribution of pharmaceuticals
Banking and Finance
JP Morgan Chase is an example of the last category. It has filed a patent application to describe a distributed ledger-based floorplan lending system. This revolving credit allows car dealers and other retailers to borrow against their retail inventory.
Here are some examples of how smart contract use can evolve from blockchain use:
Supply Chains. Smart contracts allow you to track the product from the moment it is placed on a truck or delivered at a destination. Once the product has been delivered, payment is made according to the contract to all parties in the supply chain. Smart contracts can also direct that a commodity is reordered if it falls below a specified number.
Flight Insurance. A flight insurance policy is the only thing that can make a delayed flight more unpleasant than trying to collect. Some airlines now use smart contracts to streamline the process. An app stores flight details. The passenger is notified via an app if a flight is delayed for a certain number of hours. The passenger can choose one of the compensation options and the payment will be sent to their credit card.
Real Estate. Residential real estate transactions can be complicated and require many calls, emails, and correspondence between the seller and buyer as well as attorneys and agents. Smart contracts make it easier. Title searches can be ordered based on certain conditions. Escrow can be deposited, released, or canceled. Other conditions can be met without the need for either side to make a call or click “send”.
There are benefits and disadvantages to Smart Containment