If you have ever purchased or tried purchasing a car/house, you must be familiar with the ordeal it is. Not only is the process long and complex, also you must pay several parties besides the actual seller. What if there was a way to perform buy/sell transactions quickly and without intermediaries. This is just one of many potential applications of smart contracts on the blockchain.

What are smart contracts?

Smart Contracts are computer programs built to run on the blockchain and designed to execute automatically once the underlying conditions are met. Just like any other computer program, smart contracts are pure code that contains the terms & conditions for the execution of the contract.

The most apparent use of smart contracts is in business agreements/deals where two or more parties agree to enforce a deal based on certain conditions. The core benefit of using smart contracts is that the agreements can be facilitated in a totally private and secure manner without the involvement of intermediaries. You won’t even need a lawyer or CA to process literally any kinds of business or non-business agreements using smart contracts.

Smart Contracts are based on blockchain technology, which is a distributed ledger technology (DLT) that processes and records transactions in a completely transparent manner so as to allow the transaction history to be verified easily. Blockchain is considered immutable, as the records once stored cannot be changed and all the nodes/participants in the network have access to the transactions.

How smart contracts work

Smart Contracts are probably the biggest benefit of blockchain technology to the business world. They let you perform any kind of digital trade through a totally secure, trustless and straightforward process and without intermediaries. Let’s understand this through an example.

Suppose that you want to buy a house. This usually involves a very complex, lengthy and time-consuming process. You’ll first have to find the right home. Then, the registration process can be quite tedious and may involve a lot of documentation, paying commissions to a lot of people, dealer, salesperson, etc. Also, if you are seeking a loan, there will be another bunch of documents to prepare and process as well as a commission to pay to a finance broker.

Smart Contracts on blockchain aim to make this process relatively simpler, cost-effective and straightforward. First, it can allow lenders such as banks to access the borrower’s credit history on the blockchain, thus fast-forwarding the loaning process. Second, it will remove the need for a middleman in the home buying process, as the buyer and seller can trade directly on the blockchain in a trustless manner. Here’s how it will work.

A smart contract would be created for the particular transaction between all the involved parties, i.e. the bank, the buyer and the seller in this case. The bank will release the payment to the seller. Once the payment is confirmed, the contract will automatically transfer the house’s title to the buyer’s name, who will repay the loan according to the agreed terms.

Theoretically, smart contracts can be used for any kind of digital transactions, including e-commerce transactions. For example, there is the Libra Blockchain designed specifically for e-commerce trades. The Libra Blockchain can be used for creating smart contracts to perform online shopping transactions in a trustless manner. It can be used by any individual person or company to make their e-commerce transactions more transparent, secure and cost-efficient.

The payments on the Libra e-commerce system are governed by the Libra Coin. Find out more at https://libraecosystem.com/

Original Source: https://steemit.com/blockchain/@libraecosystem/smart-contracts-on-blockchain-uses-and-scope