Smart Contract Use Cases
What are Smart Contracts and how do they work?
Smart contracts are one of the key components of blockchain-based technology. Smart contracts work by following simple "if/when...then..." statements that are written into self-executing code on a blockchain, meaning they are blockchain applications designed to run autonomously when predefined events or actions occur. There is no central authority necessary to run the software: the terms of a smart contract are specified in code and can't be tampered with, thus making them trustless and eliminating the need for intermediaries and human intervention. A blockchain-based smart contract is visible to all users of said blockchain, and as the blockchain is copied to every node in the network, the information remains safe. Trustlessness, transparency and immutability are only a few of the benefits of smart contracts.
The Bitcoin blockchain introduced the concept of decentralization, and how this emerging technology could be used to solve a number of problems for many industries in the real world. The Ethereum blockchain, which uses the Solidity programming language, started a second generation of blockchain technology, introducing new concepts to handle distributed ledgers. This included smart contract technology that brought automation to the whole blockchain network.
There are many applications of smart contracts, both in the real world and in the metaverse. Let's dive in!
What are some use cases of smart contracts?
DeFi (decentralized finance) has grown to be more than peer-to-peer transactions, with many blockchain platforms and startups diving into it. Smart contracts and cryptocurrencies have allowed sophisticated transactions to take place and DeFi platforms to provide financial services without the need for a third party. By the end of 2021, DeFi had a total value locked of $94 billion.
NFTs are one of the most popular smart contract use cases. $17 billion worth of these digital assets were traded in 2021.
Prior to the creation of the Stacks blockchain, Ethereum provided smart contract functionality to developers when Bitcoin could not. With Stacks, you can build dApps and smart contracts that make the most of Bitcoin's powers, from Bitcoin DeFi to NFTs. The Stacks ecosystem has its own smart contract language called Clarity. Compared to other smart contract languages such as Ethereum's Solidity, Clarity is optimized for security and predictability.
With new scalability and programmability thanks to Stacks, Bitcoin NFTs are poised to take over the NFT market. If you'd like to learn more about Stacks NFTs secured by Bitcoin, head over to Stacks' largest NFT marketplace, Gamma.io.
Healthcare and the insurance industry
When archived, patient data needs to become automatically immutable and accessible only to specific researchers, and records must be kept when parties access specific data. As an example, Encrypgen uses smart contracts to transfer patients' DNA data to researchers for clinical trial purposes. This smart contract application combines DNA data and payment data on the blockchain, facilitating workflows, data access and authentication, as well as payments.
Smart contracts can also improve insurance processes by automating claims management & data collection. Some large insurance companies have been experimenting with blockchain technology. Fizzy, launched in 2017 by AXA, used smart contract technology to handle flight delay insurance claims. The smart contract was connected to global air traffic databases in real time, so that refunds were automatically triggered when a long delay occurred. Although the demand for blockchain-based insurance products wasn't high enough for Fizzy to thrive, this is a good example of possible smart contract applications.
Supply chain management
With smart contracts, everyone can track the location of an item with the help of IoT (Internet of Things) sensors and smart contracts, with full visibility and transparency. Smart contracts can also automate routine tasks and payments, to facilitate organizations' workflows and reduce paperwork. Verification is reduced, and tracing and tracking is enhanced, leading to fewer frauds and thefts. HomeDepot, for example, has improved its vendor management process by using blockchain technology and smart contracts. Because they provide a single source of information, vendors and retailers can view the same information at the same time, reducing the time spent on problem-solving, and improving overall management and shipping issues.
Trade finance reduces the trust needed between parties. Smart contracts are automatically self-executed upon duty fulfilment of the other party. Document processing speed is increased and optimized, as all documents are digitally available. The use of smart contracts also improves the liquidity of financial assets, increasing financial efficiencies of suppliers and buyers.
Smart contracts can also be useful for platforms where money needs to be held in escrow. Escrows are the process of storing value between parties while the contract is still active. For this, the payer must take action to release the funds. Smart contracts allow them to automate that workflow and ensure that the funds are sent to a wallet or bank account at the right time.
With proper integration, smart contracts could solve legal complications and disputes in trade finance, especially cross-border payments and international trade.
Decentralized autonomous organizations
DAO governance depends on a core group of community members, who take critical decisions regarding the future of the project. Smart contracts define a set of rules for the DAO and how community member votes are counted. For example, you could need to own a number of crypto tokens, or hold a specific NFT, to have a say in the DAO's future.
Digital identity is a great smart contract use case. It can contain data and digital assets, and bring opportunities to the individual while protecting their identity from counterparties and have full control over how it's shared and who with, and frictionless KYC can help improve interoperability and compliance.
Thanks to blockchain technology and smart contracts, governments could issue passports in the form of dynamic NFTs that would update as a person travels, removing the need for stamps and additional paperwork, as well as reducing the possibility of fraud or identity theft.
Bitcoin Smart Contracts
Bitcoin was rarely a part of the discussion on smart contracts until just a few years ago. It has limited scripting language and prioritizes security over programmability, making it difficult for developers to work with the syntax. It was designed to be a decentralized cryptocurrency, leaving out smart contract functionality.
Stacks, formerly known as Blockstack, made bitcoin smart contracts possible, allowing developers to build Web3 dApps beyond Ethereum and other blockchains, while enjoying the security of Bitcoin. Stacks functions as the smart contract layer for Bitcoin, enabling projects that can natively use BTC, unlocking immense value and offering many benefits including lower transaction fees and unrivalled security. Stacks uses the Clarity programming language, which offers transparency and scalability.
Stacks enables developers to write fully expressive smart contracts, allowing the creation of new types of apps, use cases, NFT marketplaces and DeFi apps. NFTs such as music, collectibles, arts and even real estate can be minted through the Bitcoin ecosystem on NFT marketplaces such as Gamma, the largest NFT marketplace on Stacks.