Revolutionizing Industry and Business Processes With Smart Contracts in Blockchain

Basic Concepts Of Smart Contracts

A blockchain is a distributed information storage system that archives every activity in the blockchain network. The information within it is copied and distributed across members of the network. The key characteristic of this technology is the fact it enables unverified users to securely interact and transfer transactions to one another in the absence of an intermediator. The blockchain consists of a chronological collection of blocks. A cryptographic hash identifies each of these blocks. Every single block is linked to the previous forming a block chain. A block consists of a set of operations. After a block is generated and published to an existing blockchain, its actions are irreversible or incapable of being modified (Badri et al, 2022). This serves as the basis for avoiding the risk of double spending and preserving the integrity of information (Alharby et al, 2018). Blockchains are distributed, and extremely secure thanks to cryptographic functions and enforceable consensus procedures for fresh transactions, thereby eliminating the “middleman” to generate confidence. As a result, transaction fees are much lower (both in terms of money and time) than in the standard trade system.

Smart contracts are indeed a significant development in the realm of blockchain technology. They constitute self-executing agreements in which the conditions of a buyer-seller deal are explicitly encoded into the program. Whenever the conditions specified in the code are satisfied, the smart contract conducts the agreed-upon activities immediately, without the need for intermediaries or third parties. This automation reduces the risks of errors, delays, and disputes. Smart contracts deployed on a blockchain offer a decentralized and foolproof record storing transactions and data. When a smart contract is put into action on a blockchain, the code it contains is replicated across the network of nodes, ensuring transparency and security. These smart contracts offer inventive solutions not only in the financial sector but also have a significant role in the administration of various aspects, including information, assets, contracts, oversight, and other elements within the broader social system (Lin et al, 2022).

A smart contract is formally defined as “a set of promises, specified in digital form, including protocols within which the parties perform on these promises”(Szabo, 1997). Vending machines exemplify a straightforward application of smart contracts (automated logic). Upon coin insertion, it dispenses the products automatically and gives back change if required. There is no human intervention required as the machine operates based on programmed instructions. A code manages the coin insertion event, verifies the transaction, and executes the dispensing of goods, all in compliance with legal standards. The process is tamper-proof as the executed contract operates predictably. Automation in vending machines minimizes labor expenses, eliminates human errors, or delays, and saves time efficiently.

There are many informal definitions for smart contracts in the literature such as “autonomous machines”, “contracts between parties stored on a blockchain” or “any computation that takes place on a blockchain” (IO, 2017). All these definitions typically fall under one of these two distinct groups: smart legal contract and smart contract code (Wikipedia). Smart contract code is stated as “Code that is stored, verified, and executed on a blockchain” (Stark, 2017). The strength of smart contract code is dependent upon the programming language chosen to define the contract as well as the potential of blockchain. A smart legal contract entails software that executes or replaces legal agreements. Instead of technology, the potential of such a smart contract is determined through legal, business, and political systems (Choudhury et al, 2023).

Figure 1.

Progress of smart contracts within the blockchain