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Smart contracts might seem like complex cryptocurrency jargon to contemplate, but in reality, it’s not. An Ethereum smart contract is an automated agreement between two parties written in code. Smart contracts have continued to bloom in the crypto space, and more is yet to come. One analysis shows that the wise contract market size might reach USD 345.4 million by 2021 at a CAGR of 18.1%.
Ethereum smart contracts have had a notable impact in revolutionizing the crypto space and the world at large. Furthermore, there are ways in which users can utilize Ether Smart Contracts. Some use cases include Decentralized Autonomous Organizations (DAOs), Decentralized finance (DeFi), the supply chain industry, etc. However, the Ethereum smart contract comes with its drawbacks. Nevertheless, here’s a brief introduction to what is a smart contract.
What is a Smart Contract?
A smart contract is a self-executing contract where an agreement between two parties gets embedded via code. By taking advantage of blockchain technology, smart contracts are entirely decentralized, distributed, and transparent.
In layman’s terms, a smart contract is an agreement set in code form, which can execute transactions between parties without the need for any intermediaries. The lack of intermediaries in intelligent contracts makes the concept function automatically.
The concept of intelligent contracts began almost two decades ago. Nick Szabo, a computer scientist, and cryptographer, first proposed the idea of smart contracts. Szabo described a smart contract as a set of promises that get specified in digital form. Thus, Szabo brought intelligent contracts to life. Also, his objective was to improve contract law practices for internet users.
Consequently, the smart contract model grew over the years. However, it only did so after blockchain technology came into existence. Bitcoin did utilize the support of smart contracts; nonetheless, Ethereum was the one that significantly cemented the use of smart contracts in real-world use cases.
Ethereum Smart Contract
Vitalik Buterin, the Ethereum founder, launched the blockchain in 2015. Their focus was mainly to address different limitations present in Bitcoin and particularly to enable the execution of short programs in the blockchain.
Ethereum leveraged the smart contract concept by finding better ways to build decentralized finance systems with apps running in the blockchain. They began by allowing users or applications to push arbitrary code in the blockchain using transactions. That’s the first time the concept of smart contracts came to light.
Ethereum Smart Contract Use Cases
Smart contracts have brought the emergence of exceptional use cases through their innovative smart contract feature. Some of these Ethereum smart contract use cases include:
Firstly, Ethereum made good use of smart contracts by unearthing decentralized autonomous organizations (DAOs). These organizations operate without any intermediaries. Smart contracts govern DAOs which are simply rules coded in the Ethereum software. What’s more, a community of stakeholders votes on their administrative decisions. Several DAOs have evolved to date, which are pooling user funds to offer grants to Ethereum entrepreneurs.
Secondly, Ethereum leveraged smart contracts to develop non-fungible tokens (NFTs). NFTs are indivisible and unarguably scarce digital assets that are revolutionizing the gaming, art industry. NFTs are also guaranteeing the origin of luxury goods. After the launch of CryptoKitties’ digital cat collectibles in late 2017, the NFT industry has grown rapidly over the years. Interestingly, NFTs have managed to draw an increasingly mainstream audience to cryptocurrency and blockchain technology. For example, the NBA is among the significant industries experimenting with NFTs.
Ethereum smart contracts have led to the innovation of Decentralized finance (DeFi). Unlike traditional finance, DeFi platforms are traditional financial products and services that have undergone reinvention. DeFi platforms use smart contracts to offer decentralized, programmable, and censorship-resistant features to transform financial products.
Ethereum smart contracts are vital in the supply chain industry. Smart contract technology can help a delivery system track its product, current state, and other essential details. These specific details would have been hard to acquire without using the Ethereum smart contracts or ledger system. Furthermore, Ethereum smart contracts can automatically aid merchants in ordering things in case of a shortage in supplies. This capability of smart contracts has established a significant impact in the supply chain benefitting large and small retailers.
Ethereum smart contracts can infiltrate the government, particularly for voting processes, a vital issue in governance. Transparency is the essence of voting, and smart contracts can assist voting systems in providing the latter. Smart contracts could eradicate politics and conspiracy around voting.
For example, it can easily trace votes and ensure that the results are as accurate as possible. Smart contracts can help voters participate through a secure online system. It will significantly improve the chance to pick an appropriate government party to power.
Lastly, Ethereum smart contracts could cement a revolutionary trail in the trade finance industry. Smart contracts could save parties a lot of time and money on manual paperwork.
Parties could leverage smart contracts to finalize transactions forehand, which can ultimately diminish any kinds of disputes in the future. On the other hand, if either party breaks the terms of the smart contracts, then financial intermediaries can intervene automatically.
Benefits of Ethereum Smart Contracts
Ethereum smart contracts naturally get rid of intermediaries, so the agreement embedded in it is between the parties only. It immediately provides anonymity to both parties as well as eliminates the risk of manipulation by third parties. As a result, both parties could save on costs significantly.
Ethereum smart contracts provide unlimited backup to all your documents. What’s more, a smart contract ensures the storing of records on blockchain experience duplication multiple times. Therefore, in the occurrence of data loss, originals get safely restored.
Finally, Ethereum smart contracts take advantage of cryptography to ensure that all documents are safe from infiltration.
Although Ethereum smart contracts have fortified a significant role in revolutionizing the world, they still have some drawbacks. For example, a notable one is the attack on Ethereum’s Decentralized Autonomous Organization (DAO) in 2016. The DAO’s fundraising smart contract has a vulnerability that hackers leveraged to stash funds from the project. Furthermore, it’s nearly impossible for a smart contract to pull information outside of the network it exists in. However, oracles could make it possible as databases move to the blockchain.
Nonetheless, the Ethereum smart contract revolution proves it is here to stay. Increasing usability of Ethereum smart contracts supports the crypto space in reaching its full potential.