Smart contracts are blockchain-based computer programs that eliminate the need for traditional intermediaries. They ensure that if specific conditions are met, then specific actions are taken automatically. Since smart contracts are based on automation, the parties to the transaction do not need to know and trust each other personally.
So, what kind of transactions can be made with smart contracts? In fact, many things… And the application areas of smart contracts are not limited to the contracts as in the expression of a smart contract. However, undoubtedly, taking contracts to the next level by using smart contracts makes computer programs attractive.
Smart contracts are pieces of code. With these pieces of code, transactions on assets can be recorded on or managed by the blockchain. A natural or legal person can automatically establish a legal relationship and/or pre-determine how to solve the problems that may occur in a contractual relationship through smart contracts.
Smart contracts are deterministic, so they ensure that the terms of the contract to executed as they were coded. In addition, the contracting parties can pre-determine what they want to follow in case of non-performance of the debt. The important thing here is that the command to be encoded into the smart contract is suitable to be coded as "if...then," in other words, it is open to auditing digitally.
For example, a smart construction contract can be drawn up, stipulating that if the construction reaches a certain level, then a determined amount of money will be paid to the contractor. It is also possible to automate contracts of sale (if prices decrease to a specified level, then automatically buy shares for one of the parties), insurance contracts (if the determined risk materializes, then automatically make a payment to the beneficiary), copyright transfer contracts, and banking contracts with smart contracts.
For smart contracts, there are many fields of application far beyond their establishment and fulfillment of them.
Smart contracts established on the blockchain can play an essential role in keeping and performing transactions related to central registries such as land registries, brand registries, and trade registries. Similarly, smart contracts can also be used to keep and track the inventory records of a company.
Smart contracts play an essential role in scrutinizing the supply chain and provide transparency in the supply chain. Smart contracts record the stages of transactions such as order, production, transportation, receipt at the retail point of sale, and delivery to the end user/consumer, and the transactions performed at these stages, and share these transactions transparently.
The COVID-19 pandemic has also revealed how important blockchain is in terms of the healthcare industry. For example, blockchain technology is perfect for tracking the production and distribution process of N95 masks or drugs and keeping stock records.
Smart contracts can also be used to manage and transfer digital assets on the blockchain. Transactions related to the transfer of tokens take place via smart contracts.
Smart contracts also form the basis of NFTs. NFTs are created and recorded with smart contracts encoded using the ERC-721 or ERC-1155 smart contract standards. When a new NFT is minted, that NFT's smart contract automatically identifies the NFT creator as its owner. The smart contract code ensures that when the NFT is transferred to another person, the right to the token passes to that person.
Each NFT has a unique smart contract address. Thus, smart contracts can also be used to prove ownership and authenticity of data. For example, along with physical or digital artworks, NFTs can be created to store diplomas digitally, prove their authenticity, and share them with specified individuals and institutions.
NFT marketplaces can also benefit from smart contracts. For example, parameters/functions such as "the marketplace will remain the owner of the token until predetermined conditions are met”, or “if the auction is not succeeded, then the NFT will be transferred to the original owner” can be encoded into the smart contract.