Many forget or don’t know enough about smart contracts and how important they are. Smart contracts are a crucial part of allowing blockchain to become mainstream. They help all current and future blockchain applications and help to keep the lawmakers happy.
But what are smart contracts?
A smart contract is a contract containing legal agreements about the blockchain. They are a way in which you can exchange or sell anything of value without any possible conflict involved. As with any contract, a smart contract outlines the terms of an agreement between two or more parties. Smart contracts also enforce those terms with cryptographic codes built into them.
The idea of smart contracts first came about in the 1990s, when legal scholar and cryptographer Nick Szabo laid out the concept of smart contracts by comparing them to a vending machine. He claimed that a smart contract works the same as a simple vending machine in that you put in money, and you get something in return – you fulfill your requirement, and the vending machine does too. However, unlike traditional vending machines, the possibilities with smart contracts are endless. They are programmable agreements that can take an input of data and produce an outcome that obeys the terms of a contract that has been agreed upon by both parties.
Smart contracts cut out the middleman and need for a lawyer when mediating a purchase. Instead, people are able to lay out the terms of their agreement in a smart contract. Unlike traditional contracts where the terms and rules are written down in the native language, smart contracts have to be written in mathematical code. This mathematical description then needs to be fed to the blockchain using the selected programming language, including everything you would in a traditional agreement, such as terms, time limit, parties involved, and so on.
Why are smart contracts needed?
Smart contracts have been around far longer than blockchain technology. Some say they are more important than blockchain because they have been solving problems using code a lot longer than blockchain has.
They bring trust into legal contracts as they are stored in the public ledger and are encrypted for everyone except those involved in the agreement. This allows those involved to know the documents are protected and safe, creating trust in the relationship. Furthermore, once on the distributed ledger, the smart contract cannot be lost as it is digital, meaning anyone, anywhere, at any time can access it.
Smart contracts in the property market
Blockchain technology is rapidly hitting all businesses and sectors. Blockchain was once known only as the technology powering Bitcoin. However, now people are seeing the benefits it brings to different industries, including the property market. This is because of the smart contracts behind blockchain and how they are playing a much bigger role in the market, potentially changing the way we deal with the operations involved.
A smart contract eliminates the need for paperwork and the intermediaries involved, such as notaries and brokers. Commercial real estate players could then cut down costs and increase the efficiency of each deal. Real estate transactions are known to be slow and definitely not ‘real time’. This is where smart contracts come in to speed up the process. They may not be able to bypass local governments, but they have the technology to transform the property market to make it more efficient. They can speed up transactions, verification processes, and the process of home ownership.
Using blockchain smart contracts reduces costs significantly. They cut out the need for middlemen, meaning there will be no need for brokers, banks, or lawyers. This saves a considerable amount of money and cuts out the need to pay escrow fees.
Security is another large benefit smart contracts and blockchain bring to the property market. Rental scams, forged documents, or false listings are all impossible when documents and proof of digital ownership exist on the blockchain through a smart contract. All of these records are immutable and transparent, meaning no one can alter them. Every transaction of a property can be seen by everyone on the network.