A Simple Guide on Smart Contracts: Various Applications in Different Industries
A smart contract, as defined in the first part of this series, is an agreement between two or more parties that takes the form of self-executing computer programs rather than the invention of a central authority or third parties. Smart contracts are used to build trustless protocols in which each contracting party can have complete confidence in a specific desired outcome upon accomplishment of preset and more agreed-upon conditions.
We also considered the history of smart contracts, how smart contracts work, as well as the advantages and disadvantages of using smart contracts. You can check out the blog section or click here to link directly to the article.
Applications of Smart Contract
Smart contracts are not only useful for crypto transactions but they may also be used in a variety of industries and at many levels to create blockchain-based solutions. Objectively, smart contracts, like many other blockchain concepts, have no limit to the number of sectors or professions to which they can be used because they entail an agreement between participants.
However, some notable existing smart contract applications that are reshaping how transactions are carried out include areas of finance, gaming, insurance, real estate, and supply chain management.
Decentralized finance, or DeFi, has emerged as a formidable alternative to traditional financial services. The use of blockchain and smart contract technology in DeFi dApps and platforms have led to the increased popularity of this class of finance products and services in the finance industry. These smart contract-powered dApps such as Aave, Fantom, and uniswap provide parallel services to the banking and financial services industry, such as lending, borrowing, trading, and other financial services, while also introducing new types of products and decentralized business models such as yield farming.
Despite the significant drop in the Total Value Locked (TVL) in DeFi over the past year as a result of the bear market, the deFi sector has already captured billions of dollars in value, with a current market cap of over $50 billion, according to data from CoinMarketCap. The sector is also expected to continue growing as more people become familiar with its unique value propositions.
Insurance is one of the most promising use cases for smart contracts. In the insurance sector, disputes are common, and it is a business of contracts and agreements in the event of loss or damage. For example, smart contracts can be used to compensate a customer for a delayed flight. In 2017, AXA insurance introduced a new product called Fizzy, which utilized smart contract technology to process flight delay insurance claims. The smart contract was linked to global air traffic databases, allowing for automatic payment when a delay of more than two hours occurred. However, despite its innovative approach, Fizzy was eventually discontinued in 2019 due to a lack of demand for the class of insurance products.
Another application of smart contracts in Insurance is for quicker claim settlements for classes of insurance such as auto insurance or fire and theft insurance. With the use of emerging technology, smart contracts can facilitate policies and ensure that they have all of the essential documents, such as driver reports and driving records. Smart contracts, when properly configured with the appropriate policies, documents, and data-gathering mechanisms, can execute themselves immediately after an accident occurs. Moreover, smart contract execution is based exclusively on acquired data, ensuring that no fraud occurs during the process.
Smart contracts have also made it possible to do real estate business on the blockchain through tokenization. Tokenization is a process that enables the fractional ownership of assets, and it has been applied to real estate transactions through smart contracts. Decentraland is a very popular blockchain real estate platform that allows users to own parcels of digital land. The scope of this sector has since expanded to integrate blockchain-based platforms for real estate transactions such as Republic, SafeWire, and RealT.
By integrating blockchain, smart contract technology has also transformed the documentation and transaction process in real estate. Many of the costs connected with closing fees, title transfers, and broker fees can be minimized or eliminated by using smart contracts. Tokenized property transactions can be performed through connected smart contracts, saving the parties time and money. Smart contracts, according to experts, can also benefit parties by streamlining rental agreements, complex credit or mortgage agreements, warranties, and insurance. The use of smart contracts and blockchain in real estate reduces the need for legal advice or other advisory services, potentially lowering overall expenses.
Play-to-Earn (P2E) games have grown in popularity in recent years. Smart contracts are used in these games to support basic transactions such as buying and selling items, as well as game-specific actions such as conducting loot wars or breeding characters. Axie Infinity is one of the most popular P2E games on the market right now. This game makes use of many smart contracts for tasks including selling land, claiming rewards, and breeding.
CryptoKitties is another game that makes use of smart contracts. In this game, participants use Ether to buy and sell individual kitties, with each kitty represented as a non-fungible token (NFT). This means that even if the game’s developer goes bankrupt or bans a player’s account, the player can keep their NFT. CryptoKitties made waves when one of its NFTs sold for a whopping $170,000. These smart contract examples in the gaming industry are simply the tip of the iceberg, and we can expect to see more smart contract applications in the future as more projects break into the market.
Supply Chain Management
The management of items from raw materials to the end product is a critical step in supply chain management. We can now trace the exact state of a product throughout its path, right up until it arrives at its final destination, thanks to the integration of smart contracts and the Internet of Things (IoT). IoT sensors can offer real-time data, and automatic payment can be made when the goods arrive at their destination. This use case exemplifies how blockchain-based smart contracts might transform supply chain management.
Supply chains can be considerably enhanced in terms of visibility and transparency by employing smart contracts. Businesses, for example, can utilize smart contract-powered supply chains to track things at a granular level inside the chain, increasing inventory tracking. Additionally, smart contracts have the potential to improve other elements of the business that are directly related to the supply chain, such as eliminating the need for verification and improving traceability, resulting in fewer frauds and thefts. To make this work, institutions must invest in additional equipment, such as sensors, in their supply chain. This is one example of how smart contracts can be used to solve real-world issues.
Smart contracts have the potential to disrupt various industries by providing a secure and transparent method of conducting transactions. In terms of streamlining procedures, enhancing efficiency, and lowering the risk of fraud, the blockchain concept is proving to be a game changer. The applications for smart contracts are limitless, and we are only just beginning to scratch the surface of their potential.
As technology advances, we can expect to see more industries adopt smart contracts and harness their power to improve their operations, benefit their customers and ultimately drive innovation.