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Top 10 Smart Contract Use Cases

From piracy prevention to digital asset management to voting - these are some of the most innovative uses for smart contracts today.

Ostap Zabolotnyy
Ostap ZabolotnyyDigital Marketing Manager
Top 10 Smart Contract Use Cases

The work of a smart contract developer can be tedious. That is because blockchains are not just about cryptocurrencies. The technology can be used to design everything from voting systems and digital identity management to medical record-keeping and supply chain management. However, only a few blockchain applications have jumped from white paper to functional prototypes thus far.

There are several reasons why most blockchains in development today do not work yet. First of all, developers must agree on how data should be stored on the blockchain before building apps that interact with it. Should every node store a copy of this ledger? What if someone wants to change entries that were previously written? And who will manage these changes?

More importantly, the value proposition of blockchains is still unclear for many real-world cases. If there's no clear incentive for a third party to participate, the blockchain will not work. Lastly, many proposed use cases of blockchains are not suitable for public permissionless ledgers in their current form.

The following list describes ten smart contract use cases and what it would take to make them work. There is a description of the problem for each case, followed by suggested enhancements and an assessment of how realistic these changes are likely to be for this specific scenario. It should give you some ideas about exciting blockchain applications that could become readily available in the next couple of years.

Here are some of the main use-cases for smart contract development.

What Is a Smart Contract?

At its core, a smart contract enforces an agreement between two or more parties by updating the ledger that records all corresponding transactions. Instead of requiring a trusted third party such as a bank to guarantee that those transactions are valid, each stakeholder can merely verify that their own copy of the shared ledger reflects their latest balances and is free from inconsistencies.

In exchange for the convenience and security that smart contracts provide, a blockchain's network of users must pay transaction fees. These fees are typically paid in cryptocurrencies such as Bitcoin or Ether. Therefore, since smart contract protocols rely on these digital currencies to operate properly, you can't use them unless you own some coins.

Securities Trading on the Blockchain

One revolutionary use for smart contracts is in securities trading. In the past, handling shares of stock involved a lot of paperwork and some trusted middlemen. Today, most transactions are still made using paper: when you want to sell your stocks, for example, you get in touch with a broker and place an order. Shares are moved electronically, but there might be a delay while your broker contacts another firm to ensure that this matches their records. 

Then your broker contacts you again to let you know if the transaction is approved or not (and which route it took pending approval). That's one example of where smart contracts could simplify things quite a bit since they can easily transfer ownership without the need for brokers or any other steps.

One approach would be to use voting pools, which are not really blockchains in the strict sense but share and update a common state. This is how shareholders approve or reject proposed business transactions, for example. Blockchain voting polls could be used to handle securities trading as well. When you place an order to buy shares of stock, this information would immediately be visible to all nodes that can verify your identity (e.g., the clearing house).

Incentive: Removes brokers from the trade process; lowers transaction costs; immediate processing since trades take place simultaneously on multiple competing nodes rather than sequentially through a central broker

Challenges/unrealistic scenarios: No big banks or exchanges have expressed interest in using blockchain technology for smart contract security trading so far.

Digital Identity Management

Another interesting use case for blockchains is digital identity management. This would make it possible to link your online and offline activities by using cryptographic tokens that are tied to your real-world identity (e.g., passport, driver's license). 

The biggest advantage of this approach is that you wouldn't need separate passwords or user names for all the websites you visit. Once you log in with a username and password, blockchain technology could do the rest automatically.

Incentive: Convenience when visiting websites that use your identity (no need to manage multiple usernames and passwords)

Challenges/unrealistic scenarios: Security is a big concern; who will manage these identities? Blockchain participants won't have an incentive to help out since they don't know you.

Smart Contracts for Digital Content

In the past, paying for digital content (e.g., music, video) involved a trusted third party such as iTunes or Netflix that could play both roles of managing your accounts and delivering files securely over the Internet. 

Blockchain technology makes it possible without these middlemen by securely linking smart contracts with digital assets. For example, you could use blockchain-based tokens to pay for downloads protected by DRM (digital rights management), ensuring that you can only download the file once and on one device.

Incentive: Lower transaction costs, compared to relying on centralized service providers; less risk of losing personal data due to hacks since users control their assets; different actors can work together without a governing authority like Amazon, Apple, or Google.

Challenges/unrealistic scenarios: DRM is controversial since it limits what owners can do with their possessions; Blockchain technology isn't ready for handling large files (music, video) in bulk.

Smart Contracts for Government Services

This is a trickier but very interesting use case for blockchain technology. It could be used to automate government services such as applying and paying for vehicle registration plates, paying taxes, renewing driver's licenses, and much more. 

In theory, this could be done at lower costs by removing the need to involve third parties such as banks or clearing houses that are usually responsible for managing payments. As with digital content management, blockchain participants would only work together if they choose to do so without a governing authority.

Incentive: lower transaction costs, compared to relying on centralized service providers; less risk of losing personal data due to hacks since users are in control of their assets.

Challenges/unrealistic scenarios: security is a big concern; who will manage these identities? Blockchain participants won't have an incentive to help out since they don't know you.

Peer-to-peer Lending Markets

One of the most promising application areas for blockchain technology is peer-to-peer lending. This market is booming right now but also has its fair share of problems. For example, to participate, all lenders must be properly registered with local regulators. 

The same goes for borrowers: if someone cannot prove their creditworthiness, they could still borrow money at much higher interest rates. New blockchain technology could automate this registration process and improve borrower/lender matching by using smart contracts.

For example, a borrower could sign one contract that would automatically look for lenders in the network while another contract would record all the loan agreement details.

Incentive: Improved borrower/lender matching; lower transaction costs compared to traditional marketplaces; more efficient capital allocation since funds are not locked up during lengthy registration processes.

Challenges/unrealistic scenarios: Security is a big concern; who will manage these identities? Blockchain participants won't have an incentive to help out since they don't know you.

Digital Asset Management

This use case is similar to digital content management and involves securely linking assets with their owners through cryptographic keys. An interesting example is using blockchain technology for digital art, where all the terms of the sale are recorded in a smart contract so that it cannot be altered after signing.

Incentive: Lower transaction costs than relying on centralized service providers; improved trust among participants since there's no need to rely on a single arbitrator or governing authority to ensure proper execution of transactions.

Challenges/unrealistic scenarios: Security is a big concern; how will we manage these identities? Blockchain participants won't have an incentive to help out since they don't know you.

Gambling on the Blockchain

Many websites offer gambling services these days. So far, most of these are either not decentralized (e.g casinos run by big companies that use fiat currencies) or they require users to trust a casino operator with their money (payments are made in advance and there's no way to verify that everything is as it should be). 

With blockchains, it would be possible to eliminate both drawbacks because smart contracts could automate transactions: when you win, your payment gets processed automatically and sent directly to your wallet.

Incentive: Eliminates middlemen from gambling transactions; cheaper (no need for trusted third like banks); increased fairness because bets cannot be altered after being registered on the blockchain.

Challenges/unrealistic scenarios: Security is a big concern; who will manage these identities? Blockchain participants won't have an incentive to help out since they don't know you. 

Digital Voting

Civic is one of the early companies to propose using blockchain technology for digital voting systems. The idea is to replace insecure, expensive, and complicated paper-based balloting processes with a secure system based on Ethereum smart contracts and biometric identification tools. 

Another thing you need to note about digital voting with smart contracts is that while the technology makes it more secure and cheaper, it could also open new doors to voting fraud (e.g., blockchain-based voting could be done from any location in the world).

Incentive: Cheaper compared to traditional paper-based balloting; transparency since all votes are recorded on a public ledger shared among participants; increased security because access is carefully authenticated through biometric identification tools while records cannot be altered after being registered on the blockchain.

Challenges/unrealistic scenarios: Security is a big concern (there's always the risk of bugs); once again, security requires proper key management so that everyone can confirm their identity; what if you want to vote from an insecure device? The two use cases had quite different incentives and challenges, so it's interesting to compare them and determine which is better. 

Bureaucracy management

Blockchains were first introduced as a way to simplify and secure financial transactions. They could also be used in non-financial settings: for example, smart contracts can automate most of the bureaucracy involved with buying/selling real estate. 

The steps are simple:

  • You sign the contract.
  • Payments get made automatically.
  • Once all obligations have been fulfilled on both sides, everything gets logged on the blockchain.

Incentive: Lower transaction costs compared to relying on centralized service providers (this includes banks); increased transparency because all transactions are registered on a public ledger; increased security because access is carefully authenticated through cryptographic signatures while records cannot be altered after being registered on the blockchain.

Challenges/unrealistic scenarios: Security is a big concern (as always); who will manage these identities? Blockchain participants won't have an incentive to help out since they don't know you. 

Supply chain management

With smart contracts, it would be possible to automate supply chains without relying on any intermediaries. This would be much easier if you consider that the relationship between suppliers and customers could play out as a series of individual transactions involving physical goods. 

Some people expect that blockchains could make international deliveries more secure by both parties involved in a transaction to confirm that their interests have been served before releasing payment to the other.

Incentive: Cheaper compared to current systems (no middlemen); increased transparency because all transactions are registered on a public ledger shared among suppliers and customers; faster transaction times since goods can be tracked during transit and access is authenticated through cryptographic signatures while records cannot be altered after being registered on the blockchain.

Challenges/unrealistic scenarios: Security is a big concern; who will manage these identities? Blockchain participants won't have an incentive to help out since they don't know you. 

Bonus Use-Case: Piracy Control

Ever since Louis Daguerre created the first camera, taking pictures has become more and more prevalent. It is fair to assume that this trend will continue, and we'll soon see a large number of people buying cheap camera-equipped smartphones. 

This already happens in parts of Africa where mobile phone penetration is high. But there is also piracy: some photos (or other forms of work) are stolen by others who try to earn money without compensating their authors.

Incentive: Increased transparency for all photographers; increased security because access is carefully authenticated through biometric identification tools while records cannot be altered after being registered on the blockchain; faster transaction times since goods can be tracked during transit and transaction fees are much lower compared to credit cards.

Challenges/unrealistic scenarios: Security is a big concern; who will manage these identities? Blockchain participants won't have an incentive to help out since they don't know you.

Final Thoughts

These are only a few examples that show how smart contracts can be used outside the financial sector. Each represents an industry that requires some degree of trust between different entities before transactions occur. 

Nowadays, we have to rely on centralized third parties (like banks or government agencies) that make sure the other side plays by the rules and punishes those who don't. You could say that these institutions act as our common laws and thus contribute to social cohesion, although in practice, they sometimes fail miserably at this task.

Blockchains offer a better alternative for carrying out business; they incentivize participants to follow the rules because it benefits them more than doing otherwise. For example, if you buy something using bitcoins, then executing a smart contract could have a much lower fee than using credit cards.

One argument that should be emphasized is that any third party does not enforce smart contracts and can only use the blockchain to authenticate access. Thus, it would be right to say that they're actually more like "smart suggestions" rather than binding commitments (if such a thing exists).

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