Yahoo Finance Building Blocks: Smart contracts – the groundbreaking feature of blockchain technology
Every week Blockchain Sensei will be walking you through the basics of blockchain technology. Consider this your crash course in all things web3!
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 enables developers to deploy both fungible and non-fungible items in a single smart contract.
Despite the overwhelming hype around meme tokens and NFT artwork, those are mere fractions of the true capability of smart contracts. The applications of this technology are profound across industries like real estate, logistics and finance.
Smart contracts encapsulate the terms of an agreement in computer code and execute deals automatically based on predefined triggers. This circumvents the need for fallible human intermediaries. Instead, transactions occur transparently through a decentralised network architecture.
This matters tremendously for simplifying complex transactions. Settlement times for security trades could soon complete instantly instead of over days. Supply chains can embed self-executing logic for procurement, shipment and payment. Even time consuming, complex processes like commercial property leasing may transition to smart contract workflows. Cost, speed and accuracy all stand to benefit.
Make no mistake, monumental revenue potential exists in commercial and consumer discretionary smart contract applications – LVMH, Tiffany & Co, Starbucks are already utilising this technology to identify and refine high value customer relations. Nike has earned $185M dollars in NFT sales revenue and $90M in royalties from $1.3B in NFT sales volume which can’t be ignored.
However, the biggest financial opportunity extends far beyond marketing stunts. Mainstream Wall Street firms now aim to tokenize traditional assets like real estate on blockchain. Central banks across the globe are even prototyping digital currency projects and programmable money 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 – evolving the very architecture of agreements themselves. By embedding complex contract terms directly into software, deals can execute immediately upon meeting mutual terms of satisfaction. Trust increases, fraud risk declines, while auditability soars compared to traditional methods. This unique automation of integrity is why many deem blockchain to be as critical as protocols like HTTP were to the internet. It launches technology’s next era.
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 scaling limitations. Alternative networks like Solana offer solutions focused on speed and low fees, as little as $0.003. However, speed comes at a different cost and Solana has experienced multiple network outages in times of severe demand.
What seems certain is that automation will accelerate, especially as artificial intelligence matures. The prospect of AI-agents transacting autonomously via blockchain raises provocative questions. But its transparency could also provide visibility into activities otherwise hidden from public eye. Ever bullish Cathie Woods, CEO of ARK Invest, forecasts estimates of $5 trillion in decentralised finance activity by this decade’s end. When automated agreements become the norm, blockchain’s relevance will truly be undisputed.
