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Building Blocks: Smart Contracts: The Revolutionary Feature of Blockchain Technology
Monday 01 July 2024 06:30
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The ability of blockchain to implement “smart contracts” is one of its most revolutionary aspects.
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Blockchain’s ability to deploy “smart contracts” is one of its most revolutionary aspects. Originally defined by pioneer Nick Szabo in 1994, it was further developed in 2017 by Witek Radomski. Radomski is the author of the ERC-1155 standard, an advanced Ethereum token protocol that allows developers to deploy both fungible and non-fungible assets in a single smart contract.
Despite the huge hype surrounding meme tokens and NFT artworks, these are just fractions of the true power of smart contracts. The applications of this technology are profound in industries such as real estate, logistics, and finance.
Smart contracts encapsulate the terms of an agreement in computer code and execute agreements automatically based on predefined triggers. This bypasses the need for fallible human intermediaries. Instead, transactions occur transparently via a decentralized network architecture.
This is critical to streamlining complex transactions. Settlement times for securities trades could soon be completed instantly instead of days. Supply chains can incorporate self-executing logic for sourcing, shipping, and payment. Even complex and time-consuming processes, such as commercial real estate leasing, could move to smart contract workflows. Cost, speed, and accuracy are all factors that will benefit.
There is no doubt that there is monumental revenue potential in consumer and commercial discretionary smart contract applications: LVMH, Tiffany & Co, Starbucks are already using this technology to identify and refine high-value customer relationships. Nike earned $185 million in NFT sales revenue and $90 million in royalties from $1.3 billion in NFT sales volume, which cannot be ignored.
However, the larger financial opportunity extends far beyond marketing gimmicks. Major Wall Street firms are now looking to tokenize traditional assets like real estate on blockchain. Central banks around the world are even prototyping digital currency and programmable money projects using smart contracts. As regulated capital markets adopt blockchain rails, a raging bull market for institutional investors becomes inevitable.
The ultimate promise of blockchain technology lies in something even greater than direct profit: the evolution of the agreement architecture itself. By embedding complex contractual terms directly into the software, agreements can be executed immediately upon mutually satisfactory terms. Trust increases, the risk of fraud decreases, and auditability increases dramatically compared to traditional methods. This unique automation of integrity is why many believe blockchain is as fundamental as protocols like HTTP were to the Internet. It ushers in the next era of technology.
Despite the immense promise and future potential of smart contracts, the path forward is not without challenges. Ethereum, as the dominant smart contract pioneer, currently averages $6 per blockchain transaction and faces severe scalability limitations. Alternative networks like Solana offer speed-focused solutions and low fees, as low as $0.003. However, speed comes at a different cost, and Solana has experienced multiple network outages during periods of high demand.
What seems certain is that automation will accelerate, especially as artificial intelligence matures. The prospect of AI agents autonomously transacting via blockchain raises provocative questions. But its transparency could also provide visibility into activities otherwise hidden from the public eye. Ever the optimist ARK Invest CEO Cathie Woods Predicts $5 Trillion in Decentralized Finance Assets by the end of this decade. When automated settlements become the norm, the relevance of blockchain will be truly unquestionable.
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