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Role of Smart Contracts in Blockchain Development
By Laxmikant Khanvilkar
Smart contracts are essential to blockchain development. Smart contracts, inspired by blockchain, may streamline complicated processes, and alter enterprises. These self-executing contracts are exactly encoded with preset rules and circumstances, eliminating intermediaries, and assuring transparency, security, and efficiency.
Be it in the professional sphere or on the personal front, contracts have played a key role in upholding the broader societal interest stitched together.
They have become intellectual in modern times, known as smart contracts, and are a crucial part of blockchain technology. The goal of a smart contract is to simplify business and trade between two known or unknown parties, sometimes without the need for a middleman.
A smart contract is known to help scale down on the formality and costs associated with traditional methods without compromising on authenticity and credibility.
Computer software can automatically execute the agreement when specific criteria are met.
Listed below are the advantages of smart contracts:
- Security: Thanks to its immutability and distributed ledger technology, the distributed ledger provides an extra layer of security.
- Disintermediation The ability to engage in agreements with less reliance on intermediaries is known as disintermediation.
- Real-time inputs: When all requirements are met, the process enables near-real-time execution by running almost concurrently across all machines involved.
- Transparency: Facilitates trust by making all contract logic and information accessible to everyone on the blockchain.
When all parties involved in a blockchain network can see the logic and information in a contract, it fosters an atmosphere of trust. Smart contracts are not immune to challenges. They have their fair share of challenges in implementing these contracts on the mainnet. If left unchecked, they can hinder the immediate adoption of blockchain technology. These are:
- Confidentiality: Businesses are wary of posting contractual information on the blockchain because it might reveal competitive tactics, despite their desire for openness. Unlike permission-driven blockchain platforms like Hyperledger, which allow users to create private smart contracts that are accessible only to the parties involved, Ethereum does not provide a private smart contract option. Businesses will have to prioritize their needs when choosing a blockchain platform. Every clause and condition of a smart contract must be coded as a computer program to ensure accuracy. A contract might have gaps in it due to the coder’s potential for misunderstanding or omission. As smart contracts are used more often, these vulnerabilities will increasingly become common, requiring us to learn how to write in order to avoid them.
- Unreliable Inputs: Misleading or non-executable contracts may result from unreliable inputs. The parties to a conventional contract have the option of seeking resolution via the courts. Due to the ongoing judicial controversy surrounding smart contracts, this is currently not an option. Currently, smart contracts are not a viable option due to the ongoing judicial controversy surrounding their legal validity.
- Bugs and errors in the code: As a result of mistakes and bugs in the code, disagreements and procedural problems may arise while trying to determine who is at fault. They could also cause unforeseen repercussions. A hacker stole 50 million Ether, a bitcoin-like digital currency, by exploiting a vulnerability in the code of the Decentralized Autonomous Organization (DAO), a smart contract built on Ethereum.
- Rogue Contracts: Even criminals, terrorists, hackers, and smugglers might use smart contracts to carry out their illicit actions because of their anonymity and ability to execute themselves. Smart contracts have the potential to revolutionize global commerce and business by streamlining transactions, reducing paperwork, and achieving cost efficiency.
Art, music, real estate, finance, manufacturing, retail, supply chain, telecom, and several other industries have significantly benefited from smart contracts. If the platforms that host smart contracts accept payments in all currencies instead of just cryptocurrencies and bring them under the purview of the current judicial system, it would hasten the adoption of smart contracts.
Only two US states, Arizona, and Nevada, have taken this approach. Both enacted legislation this year to legalize smart contracts. Smart contracts will be practical, or, in short, individual agreements, until they gain legal recognition across states and countries. Businesses, however, may need to resort to more conventional, less flexible contracts for protracted, large-scale transactions.
We may have no choice but to resort to hybrid contracts in some cases; these documents facilitate the execution of agreements in a more streamlined and secure manner while also opening the door to judicial review and audit.
The Web3 industry has hugely benefited from blockchain technology, which serves the dual purpose of security and scalability. Hence, its adoption is on the rise, and it offers tremendous potential.
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