Did you know that smart contracts are one of the most significant inventions existing in blockchain technology? Yes, it helped reduce the primitiveness of the first edition of the blockchain technology that came with Bitcoin. 

As a beginner, it is normal to be confused about smart contracts and how they work. While it could seem complex, be assured that you will clearly understand how it works after reading this explanation. 

In this article, we will clear all your confusion by explaining the meaning of smart contracts and their use cases in real life. 

What Are Smart Contracts?

Source: Geeksforgeeks

Smart contracts are digital codes or programs built on existing and agreed conditions between two parties that remove human influence and interference. 

Nevertheless, one should note that smart contracts have not always existed. They came due to the numerous changes and evolution of the blockchain. 

The version of blockchain technology that existed during the early years of Bitcoin was very primitive. This means it didn’t give enough room for blockchain developers to do much automation and give certain commands on the platform. 

Then Ethereum was created, and blockchain technology underwent several changes. With Gavin Wood and Vitalik Buterin creating Ethereum in 2015, the second generation of the blockchain was born. This second generation of the blockchain came with new concepts, including smart contracts. With smart contracts, many things became automated using a set of digital codes and programs. 

Benefits Of Smart Contracts?

Smart contracts come with many benefits, and some of them are:

Fast Performance 

One of the best things about smart contracts is that they are swift with their performance. It can quickly receive and verify the information within seconds. 

Security 

Data that passes through smart contracts is much more secure than most traditional technologies. 

Cost-effective 

Since intermediaries are removed from the process, running smart contracts costs less. 

Accurate 

Once the codes are programmed correctly, smart contracts are known to be error-free. 

Autonomous 

Smart contracts govern themselves with the codes used in programming them. This means that no third party can influence its actions and decisions. 

Applications of Smart Contracts in Real Life

Source: 2muchcoffee

Here are some uses smart contracts have whenever the technology is applied in real life. 

Loans and Mortgages

Smart contracts have a real-life application in the loan and mortgage sectors. A major benefit of smart contracts in the loan and mortgage sectors is their ability to render a frictionless process. 

You should know how mortgages work. It involves a lender and you, the buyer of the home. The lender helps you by providing finance to help you move into a home and live there. Then, over time, you can pay off the amount used in buying the house plus the interest accrued. 

Now, a smart contract helps by making the whole process easier and faster to track. When you pay off the mortgage, the smart contract immediately transfers home ownership from the lender to you. 

Digital Identity

Digital identity verification is a big issue that smart contracts solve when deployed to the required sector. So long as you use the internet, there are many instances when you need to verify your identity. 

However, sometimes you may reveal too much in the process of verification. Surely, you wouldn’t want a company or website to know everything about you. So how does the smart contract help? 

Smart contracts help verify your identity in different systems without revealing your true self to third parties. This blockchain technology solution is incredibly important in Know Your Customer (KYC) procedures. 

Cross-country Payments

Cross-country payments are often a problem because of the bottleneck process of providing proof and verifying them. When it comes to providing proof and verifying them, smart contracts are one of the best technologies. 

Assuming you are an exporter, you can use smart contracts to verify payment proof before releasing goods to your customers. Assuming you accept payment with Bitcoin, a smart contract can easily be used to verify if your customer made a payment, and it would quickly release goods to them once verified. 

Security

One of the things that compromises the security of data and other important information is third parties. Third parties do not exist with smart contracts. Everything is straight to the point, and its processes do not need any bureaucracy. 

Since everything is straightforward with smart contracts, information and funds can be quickly sent from one person to another without compromising security. 

Financial Data Records

Every organisation keeps financial records, including non-profit organisations. Regarding financial data records, you may face two problems: transparency and security. 

This is where the application of smart contracts comes in. With smart contracts, you can easily keep track of your finances without compromising security. You or an organisation can easily tell when a financial transaction took place, who made the transaction, and the intent of the transaction.

Insurance

Insurance is a concept almost everyone uses, but sometimes fraud exists in this sector. Sometimes insurance companies can stop you from accessing their service due to a lack of transparency. The insurance sector can take advantage of smart contracts, which will help solve many issues in the industry. 

With smart contracts, insurance funds easily trigger themselves whenever it detects that you had an accident or something similar. However, you will submit the necessary documents and pass certain policies before this happens. 

Escrow

Escrow services are used in many cases, especially in the financial sector. To give you an overview of what it looks like, we will discuss peer-to-peer crypto trading. Peer-to-peer trading is where you buy cryptocurrencies directly from the seller without any third parties.

When a smart contract is deployed in this scenario, it performs the escrow service by holding your funds and waiting for the seller to send the crypto before releasing your funds to them. 

Final Thoughts

Smart contracts are codes and programs built on existing agreements between two or more parties. Smart contracts ultimately resulted from the creation of the Ethereum blockchain, and they have grown into an indispensable invention. 

There are many real-life applications of smart contracts, such as in loans and mortgages, insurance, escrow, financial recording, and digital identity. BingX is a crypto exchange that allows you to buy and sell crypto legally without any middlemen.

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