Smart Contracts

Smart Contracts

Once you enter the world of blockchain, you are bound to hear words like hashes, codes, decentralized, peer to peer and smart contracts. In a previous article about blockchain, I had referred to smart contracts as the code/design of your blockchain business that you will initiate via the Ethereum network. Starting a blockchain business without making your own standalone coin like Bitcoin or Ethereum on a blockchain network would require Smart Contracts. Smart Contracts empower you to design your own business, create your own crypto currency token and have a market place on the blockchain network.

Smart contracts help you exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman. The best way to describe smart contracts is to compare the technology to a vending machine. Ordinarily, you would go to a lawyer or a notary, pay them, and wait while you get the document. With smart contracts, you simply drop a bitcoin into the vending machine (i.e. ledger), and your escrow, driver’s license, or whatever drops into your account. More so, smart contracts not only define the rules and penalties around an agreement in the same way that a traditional contract does, but also automatically enforce those obligations.

Blockgeeks Inc

Below is an example of how documents/deeds work on a Smart Contract structure

Smart Contracts work in a particular fashion but can be molded according to how you would want your business model to be structured.

Let’s take an example:

In traditional insurance business, we pay premiums to an insurer on a daily, weekly or monthly basis and if an event that we have taken insurance for occurs, there is a whole lot of procedure that takes place.

- You have to first submit your documents to insurance companies, give them proof that look, these are the documents and images which prove the occurrence of the event

- And then the insurance company will conduct it’s independent tests and if, according to them, the event has occurred, only then will you get your money.

- Otherwise, they make you wait for months, we have to even file cases against them in courts and still have to sit and wait till the court orders the insurance company to pay us the money.

With introduction of smart contracts, we can easily eliminate this entire waiting, unnecessary stress which comes with it and the high processing fees charged by the owners of the current centralized system based insurance businesses.

Under smart contracts, the user deposits their money and gets a verified contract which lists down all the possible events that can happen. This transaction is present on the entire network. If the event actually occurs, the contract gets executed automatically as soon as the validators* on the network validate the transaction of contract, and you get your money safely and securely. No waiting, no fuss, no stress!

Another industry example that we can have is of crowdfunding websites. We have websites like kickstarter and catapult which conduct crowdfunding for different projects. 

In the above, we, the users are called the supporters, the middle party which mobilizes fund is the kickstarter/catapult or any other crowdfunding aggregator for that matter and then we have the product team which creates the project for crowdfunding.

Here, the project owners and the people donating or contributing their hard-earned money have to rely and trust kickstarter. The users may or may not come to know the actual progress of the product team’s project or the project team may get their money after kickstart takes it’s share.

How can we create a system where the supporters and the product team can directly contact each and other, track the progress made by then product team and if the project has not been initialised, how can we get our donated money back?

Answer – Smart Contracts

Here, the supporters donate their money to the contract which states or lays out the progression of the product team with their business/activity. If the project is completed only then will the contract shall be fulfilled, and the product team will get their money. 

If the project fails to complete, people will get their money back. And blockchain works on validation. The validators or miners will make sure that only when the contract is fulfilled in this case, only when the project is completed, will the product team get their money otherwise, the money will be back in the supporters’ pocket.

It is not as simple as it looks. Designing such a business is at the crux of smart contracts.

How can we design a business based on smart contracts? – Solidity, the programming language that allows you to initiate your business design on the Ethereum Network via ‘Ethereum Wallet’ or ‘Mist’ and generate your own tokens.

You can visit – www.ethereum.org to understand the steps involved or to understand the solidity language.

Things that you should be taking care of while creating the business. 

1. The Feasibility of Idea and It’s Acceptance by the Masses 

If you have designed a robust blockchain business model but you don’t have a market for it, well there is nothing any one can do about it. People should know the benefits of using your product or service over the traditional/digital businesses.

2. Designing 

Designing requires a lot of brain storming and has to be checked on each step of the way. Your design is the key to your smart contract. Wrong design or incomplete design won’t fetch you a penny. In fact, it may just be a waste of time and you will be behind in the race to be in the blockchain market place.

3. Integration of Your Design with your Front Application 

You created a design – check

You created a token – check

But did you create a front-end application for your customers/users that helps them easily transact with each other and access your services?

The user engagement in Blockchain based business is very critical because they directly compete with the traditional/digital business that are currently present in the market. If your application is not integrated with your smart contract, there will be no use for your token. An expert programmer and designer can help you achieve this. It isn’t tough but surely very important.

4. Creating a Road Map 

A road map determines the way you execute your business in the blockchain network and list your tokens in the crypto market place. The existing smart contract blockchain businesses have followed this procedure and so should you not because you should follow the herd, but this system brings more confidence in your team and your target audience about your blockchain business.

A road map of an aviation industry based blockchain business looks like this:

Credits – BitAir Payments Solutions

Roadmap of a music industry based blockchain business:

Credits - VOISE

Your Roadmap is your timeline and should portray your plan of action. From research, to getting permissions, to creation of designs, apps and tokens, to connecting with business partners and finally a future expansion plan, everything should be determined and displayed on either your site or your whitepaper(Blueprint).

5. Marketing and Promotions 

Without marketing and promotions, no business can be made aware of in this multi-fold continuously expanding market place. Techniques for promoting a blockchain based smart contract involves further steps in addition to the traditional ways.

I have listed some of them below:

i.  Attending Blockshows and conferences

ii. Integrated Marketing Communication

iii. Writing blogs and articles of about your business and getting them published on social media and media agencies associated or dedicated to crypto markets like CoinTelegraph and CoinDesk

iv. Making videos and demos and sharing them on newer blockchain platforms like blockstack internet and YouTube

v. Getting recommendations from blockchain industry experts and market players. The community will support you not only in the short but in the long run as we all are here to disrupt the traditional forms of doing business.

6. Initial Coin Offering 

Under the traditional start-up creation process, you would trade your control for money with Venture Capitalist and big investors. Here, you don’t need to forego control at all.

You can raise funds for your business directly from people (your target consumers) via the Initial Coin Offering. If you instill that kind of confidence in the mind of your target audience, well, you have already won them and additionally have got the required funds to scale your business.

Under Initial Coin Offering, the blockchain businesses, distribute their own tokens in exchange of established crypto currencies like Bitcoin or Ethereum to the masses. These tokens can appreciate in value if the business is successful and these tokens can be further used to avail the services or products of that blockchain business.

The main difference between an Initial Public Offering(IPO) and an Initial Coin Offering(ICO) is that of trading of control. Under IPO, shares are distributed by a company to raise funds but these shares represent ownership of the company. The owners of the shares, then become the decision makers of the company and decide it’s future, decide the management, etc.

As against this, under an ICO, only funds are raised for the blockchain business. No control is foregone in this process. People who contribute funds to an ICO enjoy capital appreciation on their tokens and services of the business as mentioned in the above paras. The blockchain business owners or start-ups have full control over their business and carry out their services in the intended way.

Tokens are listed on the many crypto currency exchanges that exist in the market.

7. Sustaining your Smart Contract 

Sustaining in the market should be any Blockchain business’s immediate goal. We, as an industry, are very new to the world. The world is coping and trying to adjust with the Internet of Things and digital start-ups and we have already another change right in our hands. Convincing people to trust a trustless decentralized environment is a challenge in itself. Accountability and regulations reduce the confidence people are trying to build on this industry.

Providing exceptional and concrete business products/services with a true value and fundamentals should be the key. Aiming to conduct a fraudulent activity under the blockchain industry would neither help you in short nor in the long run.

Smart contracts, based on the Ethereum Network, is one of the many and easiest ways to enter the Blockchain market place.

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  • Gary James

    The business of smart contracts is just get starting in 2018

  • Martin Bush

    We are entering an exciting new era

  • Dan Borgia

    good content awesome

  • Ali Raza

    Superb stuff

  • Shaquille Hughes

    Always learning something new with you!

  • Chase Beasley

    Enjoyed your post a lot!!

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Aman Soni

Management Guru

Aman is a Global Assurance Trainee at KNAV International LTD. He is passionate about business and technology as well as the different policies and initiatives taken by the Indian Government. He drafts policies and suggests key areas for development purposes to his local government through their portals on web and mobile. Aman holds a Bachelor of Commerce from the University of Mumbai and is also pursuing the Chartered Accountancy final exam.

   

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