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Smart contracts: the innovative feature of blockchain technology
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” represents one of its most revolutionary aspects. Originally defined by pioneer Nick Szabo in 1994, then 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 elements 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 extremely important for simplifying complex transactions. Settlement times for securities trades could soon be completed instantly instead of in days. Supply chains can incorporate self-executing logic for sourcing, shipping, and payment. Even complex and time-consuming processes, such as commercial property leasing, can transition to smart contract workflows. Cost, speed and accuracy 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 goes 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 embrace blockchain rails, a bull market for institutional investors becomes inevitable.
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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 its challenges. Ethereum, as the dominant pioneer of smart contracts, currently costs an average of $6 per blockchain transaction and faces severe scalability limitations. Alternative networks like Solana offer solutions focused on speed and low fees, starting from $0.003. However, speed comes at a different cost, and Solana has experienced numerous network outages during times 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 Cathie Woods, CEO of ARK Invest, projects estimates of $5 trillion in decentralized financial assets by the end of this decade. When automated settlements become the norm, the relevance of blockchain will be truly unquestionable.