This data is taken from the NISG, Niti Aayog and other papers on Blockchain.

Business Value Layer: Smart Contracts

A smart contract contains a computer code that converts a set of rules or terms and conditions for execution of a business transaction agreed upon by two or more parties that are involved in value exchange, into a computer-executable program. This program executes on the top of a blockchain where the value transfer is recorded without the authentication and verification of the trusted third party when the transaction is executed conditional upon well-defined conditions coded in the program.

In other words, if a set of pre-defined rules are met, the smart contract executes itself to produce the output which is recorded on the blockchain.

Smart contracts are the layer that has the most economic value in business as well as governmental applications of the blockchain technology. This layer leads to not only reduction of the transaction costs significantly but also leads to minimise contractual disputes and litigations

In the current state of technology, getting a court-registered document as a proof, one would first need to go to a lawyer or notary, pay them for their services and then wait till they authenticate the document. However, with blockchain technology, the scenario changes completely. When this process is executed with a smart contract, one would simply get the document by only making the payment for the asset that is recorded in the document and not for the services of any third party such as a lawyer. Therefore, smart contracts not only define the rules around any agreement, but they also automatically execute those rules, transfer value and update the asset ownership records.

Advantages of Smart Contracts:

• Transparency
• Time-efficiency
• Precision
• Safety and Efficiency
• Data Storage
• Savings
• Trust
• Paperless

Applications of Smart Contracts:

• Insurance - using Smart contracts in such processes can result in simplifying and streamlining the processes by automatically triggering payment for a claim when certain conditions are met as per the client and company’s agreement.
• Internet of Things - These devices can be connected to the blockchain system to keep a track of all the products and processes in the loop. For example, in a general scenario, you might receive a wrong order while shopping for something online but with the combination of Blockchain and IoT, the product and its location can be tracked every step of the way including the warehouse, transport, shipping to your doorstep
• Mortgage Loans - Using smart contracts in this situation is beneficial due to multiple reasons. The most important being the elimination of the middlemen to avoid any lengthy process and confusion. Moreover, all the details can be stored in one location which is always accessible by both parties
• Employment Contracts - By using a single smart contract for both the parties, the terms, and conditions can be made clear which would help improve fairness. These records could be anything such as salary amount, job responsibilities etc. Once these transactions are recorded on smart contracts, they can be investigated in case of any conflict. Moreover, smart contracts can be utilised to make wage payment processing easier so that the desired employee receives the agreed amount in a specific time period.