Smart Contract Use Cases: Unlocking Blockchain’s Potential

Blockchain technology introduced the world to the possibility of carrying out activities in a decentralized and permissionless manner. Smart contracts are built on various blockchains, except Bitcoin, to spell out how some activities should be done.

Alchemy, a reputable infrastructure provider in Web3, reported that over 4.6 million contracts were deployed on Ethereum in the last quarter of 2022. This is excluding the smart contracts that were deployed on blockchains other than Ethereum.

This shows the increase in adopting smart contracts for various use cases. As to popular opinion, smart contracts are useful beyond decentralized finance or crypto. They are applicable in various mainstream industries.

For instance, a four-bedroom house in Florida was sold through a smart contract. In addition, creatives and entertainers can now get a royalty on their intellectual property with smart contracts. 

Read on to know more about how smart contracts are disrupting other industries such as healthcare, insurance, and law.

What Are Smart Contracts?

Smart contracts are programs built on a blockchain to facilitate transactions or coordinate certain activities between different entities on the blockchain.

They function more on specified conditions. For instance, if a user passes a particular requirement, they should be allowed to take action B.

A typical smart contract is often autonomous and decentralized. Smart contracts can be coded and deployed on any blockchain.

This is how a hypothetical smart contract is written with Solidity. Feel free to read a full guide on how to create an ERC-20 token.

// @dev This codebase is entirely for education and should not be pushed to prod
// @dev It is unaudited and can be vulnerable


// SPDX License-Identifier: MIT 

 pragma solidity ^0.8.17;

  contract Car{
    address public owner;
    string public model;

    constructor(string memory _model, address _owner) payable{
     model = _model;
     owner = _owner;
    }
  }

  contract CarFactory{

    Car[] public cars;

     function create(string memory _model) public {
       Car car = new Car(_model, address(this));
       cars.push(car);
     }
  }

The above contract is what we call a factory contract – a contract that can deploy other contracts.

Smart Contract Use Cases In Various Industries

This is how many mainstream industries are leveraging smart contracts for a greater level of efficiency:

Finance And Payments

Centralized entities have steered the control of finance and payments for too long. The shortcomings of traditional finance include data censorship, high charges, inefficient cross-border payment solutions, and so on.

But smart contracts brought in decentralized finance for businesses and individuals to take charge of their finances without the censorship of centralized authorities. According to DappRadar, a blockchain data analytics platform, the total value locked (TVL) in DeFi is about $75 billion.

This data points to how useful smart contracts have been in finance and payments. There are several DeFi dApps that are proferring better services compared to the ones obtainable in traditional finance or even FinTech.

For instance, lending protocols such as Aave make it possible for entities to get under-collateralized loans. Users can also lock their funds in a liquidity pool of protocols like UniSwap and Compound to earn passive income on their funds.

Freelancers and remote workers no longer need to bother about the rigorous processes and delays of obtaining international payments. They can receive their payments within minutes through smart contracts.

The government of Jamaica created smart contracts to manage the Central Bank Digital Currency, so the citizens can spend crypto.

Gaming And NFTs

Gaming is one of the most bubbling industries with over $300 billion worth and over 3 billion active players globally. But the industry has been facing two major issues right from time: true ownership and equitable monetization.

Gamers use in-game assets while playing games, but they do not own them. The players only use the characters and objects in games such as FIFA or Call of Duty without owning them. This limits the gaming experience.

The second problem the gaming industry faced was equitable monetization. Typical players only play without making tangible income, which is the reason some of them quit.

Non-fungible tokens, often called NFTs for short, on smart contracts, came in to fix this problem. Gamers can now own their in-game items or characters as tokens and they came to have them in their wallet. This gives more gaming freedom as the gamers can even use the characters in game A in-game B. NFTs can also be lucrative assets from a financial standpoint. As a result, gamers can sell them to make money.

Thriving Web3 games such as Decentraland and the Sandbox are leveraging NFTs for their players to have a more intimate and profitable gaming experience.

An example of an NFT

Legal And Intellectual Property

Smart contracts are revolutionizing how the law perceives a binding agreement. There is a paradigm shift in how smart contracts are taking legal contracts on-chain. Even though it was resisted at first, smart contracts now make headway as legally recognized binding contracts. 

Many countries such as Italy, Dubai, and the United States have incorporated smart contracts into their law. Smart contracts have a few use cases in the legal industry.

First, legal documents can become more secure and easily transferable as NFTs on smart contracts. Secondly, smart contracts are more cost-effective compared to hiring lawyers and arbitrators.

Moving on specifically to intellectual property law, smart contracts are secure and protect authorship. They can be written to give royalties on every sale of a token to the creator(s). They are also useful in keeping immutable records of creators, so they can patent some new inventions.

The Governor and Senate of Arizona passed a bill that recognized smart contracts as binding legal agreements.

Voting And Governance

Humans are political and social by nature. But the voting landscape is easily corruptible with external influences. Smart contracts, being self-executing and tamper-proof, present a more transparent method of voting.

Sierra Leone was the first country to utilize a smart-contract-based voting system in 2018. The election was clear and transparent as the votes are easily verifiable on-chain.

Ever since Sierra Leone opened the floor, some other countries are on track to do the same.

Besides using smart contracts for national elections, they have also been useful in terms of governance and corporate structure. The advent of Decentralized Autonomous Organizations was a new use case for smart contracts in governance.

A DAO creates an on-chain environment for people to make decisions and agree on common goals. The funds are also held in a vault or multi-sig wallet. Thus, the structure of a DAO presents a decentralized form of governance.

There was an interesting event in 2022 when Sotheby put up one of the original copies of the US Constitution for auction. A group of people came together under a Decentralized Autonomous Organization smart contract to purchase the copy. They raised around $47 million within a short time. This shows how instrumental smart contracts can be in bringing together people of like minds.

The banner of Constitution DAO

Real Estate

Real estate has been one of the most profitable industries worth around $327 trillion. However, the bar to entering the industry either as an investor or property owner is too high. In the United Kingdom, for example, residential investors need to have around £50,000 for a start.

Smart contracts lowered the barrier with fractional ownership. Investors can buy bits of real property they can afford and get returns.

Smart contracts also eliminate the bureaucracy and rigidity that exist in the traditional real estate industry. Middlemen are cut off since everything will be facilitated via smart contracts. All the documents can also be forwarded as NFTs, while the buyer or investor pays in crypto.

In addition, the level of fraud in real estate will reduce with more smart contracts. This makes it easier for anyone to verify ownership on-chain and avoid fraudsters who have no title.

 A lot of proptech companies are already adopting smart contracts, including RealT and Propy. They list the property on their websites, and the intending buyer pays through smart contracts.

One of the earliest implementations of smart contracts in real estate was how a $60k apartment was sold in Ukraine through a smart contract in 2017.

The banner of the first NFT Real Estate Auction

Healthcare

Healthcare is an industry with a lot of sensitive information such as patient medical history and so on. Research attests that 30% of all data breaches occur in the healthcare sector.

The main use case of smart contracts in the healthcare industry is data privacy and secure storage. Healthcare professionals can securely share the data of their patients with them through a smart contract. It also makes it possible to share data with only authorized entities.

With thoroughly audited smart contracts, healthcare companies can be free from data breaches and theft.

Companies such as BURSTIQ are springing up to help healthcare companies keep, share, and sell data through smart contracts.

Insurance

Smart contracts are redefining the insurance industry with on-chain automation. Smart contracts can verify claims and data of the insuree so the insurance company has less work to do.

In addition, blockchain technology acts as a touchpoint for all parties to derive evidence and valid truth. Since the data will be on-chain, no party can tamper with the data and any one of them can access it.

Taking the travel insurance space, for example, companies like Fizzy use oracles to connect their smart contracts to get air traffic reports. Their smart contracts automatically pay insurees once they have stayed more than usual at any airport.

Supply Chain Management 

The supply chain space is complex with a lot of parties including distributors, manufacturers, end users, and so on. Blockchain technology is ushering immense innovations into the supply chain industry.

The first use case of Web3 is the maintenance of authenticity and transparency. The supply chain industry is perforated with counterfeits. Research shows that counterfeiting surpassed $3 trillion in 2022.

Smart contracts can hold the details of each asset, including their original manufacturers and correct description. Anyone can fact-check the originality of any product by comparing them with the original data in smart contracts.

The second prominent use case of blockchain technology in supply chain management is document digitization. Receipts, guarantees, warranties, and other documents can be minted as NFTs for easier accessibility.

In addition, smart contracts facilitate a more efficient and faster payment mechanism among everyone involved in supply chains. All the participants can receive their payments in crypto, and this even checkmates the possibility of fraud.

DHL, one of the biggest logistic companies in the world, is on track to implementing smart contracts in their supply chain.

Everledger, a UK-based company, is a platform that uses smart contracts to record accurate origin of various products for transparency and authenticity.

Digital Rights Management 

Digital assets include software, books, videos, images, characters, and so on. The industry is subjected to acute issues of piracy and unequal distribution of cash flow.

Blockchain technology fixes these problems with tokenization. Digital assets can be converted into fractions of non-fungible tokens. As a result, they can not be pirated.

Looking at the music industry specifically, a study reveals that musicians only get 12% of the cash flow in the music industry. 

Smart contracts ensure musicians get royalties on all their works, thereby bringing equitable distribution to the digital asset industry.

Arweave is a good example of a blockchain protocol in the digital asset management space. The protocol preserves each asset with the immutability flavor of the blockchain.

Challenges For Smart Contract Implementation

The adoption of smart contracts across various industries has been gradual due to some challenges.

Security Risks And Vulnerabilities

Smart contracts are programs that can contain vulnerabilities. One of the major reasons some industries were skeptical about adopting smart contracts was the risk of being hacked.

Interestingly, smart contracts can be secure and tamper-proof once they have been comprehensively audited. Once mainstream companies get smart contract audits, they can be sure that they are safe.

Legal And Regulatory Considerations

Smart contracts are not yet “legal” under the eye of the law in most countries. As a result, some industries do not see it as a credible and legally binding contract.

But the tide is changing as blockchain is legally recognized in the law of many countries of the world. There are chances that there will soon be an international legal authority that will give smart contracts wider legal recognition.

Scalability And Interoperability

Blockchain technology is still so early that some prominent chains cannot handle larger traffic within a short time. Smart contracts on blockchains like Ethereum can still be slow and expensive to interact with.

In addition, most blockchains cannot interact among themselves, and this presents a bottleneck. For smart contracts to gain wider adoption, blockchains must be scalable and interoperable.

Summary

Blockchain technology is proliferating in every industry including real estate, healthcare, and finance. Even though there are challenges, a lot of mainstream companies are utilizing smart contracts in enhancing their work.

In the future, we are bound to see more creative solutions about how smart contracts can solve real-life issues. But at the same time, security is crucial to global adoption. Any industry that plans to use smart contracts should have it in mind to audit them appropriately.

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