Smart contracts present one of the key features of Ethereum — though they are also available in other blockchain projects like NEO — enabling applications to run in a blockchain. These decentralized apps — or dapps for short — promise to revolutionize many industries, streamline processes and make for overall more efficient systems.
Before proceeding, we suggest you once again check our piece on how smart contracts work as well as the article on blockchain oracles, which in some cases provide a proof that a desired action took place (so that a smart contract could execute).
With that out of the way, here are 5 great use cases for smart contracts:
1. Financial services contracts
Bitcoin, and with it the blockchain technology, was invented to make it easier to send money from one side of the planet to the other. So it’s not surprising that smart contracts could be of use in the financial industry. In particular, they will be applied in areas such as in mortgages, bonds, payments and settlements, insurance claims, and so on.
The mechanism is relatively simple: when a certain criteria is made — i.e. a payment was registered — some amount of money will move from one account to the other. No need for any intermediaries, with a smart contract automating the process.
2. Initial Coin Offerings (ICOs)
Again, no surprises here. The problem, however, is that most ICOs today are not “smart,” as in — there is no an underlying smart contract in the background.
A new process is emerging as proposed by Vitalik Buterin, the founder of Ethereum. It is called DAICO, which stands for Decentralized Autonomous Initial Coin Offering. You may want to check out article dedicated to DAICO.
In a nutshell, a DAICO uses smart contracts to make ICOs more effective, transparent, democratic and fair. It makes sure that developers are paid only when they reach previously defined milestones. This in turn should reduce the number of fraudulent ICOs.
3. Prediction markets
The prediction markets are used in areas such as elections, sport matches, price points of an auction, and so on. They are designed to incentivize participation in predictions, and when some user makes an accurate prediction, a smart contract kicks in to reward that user.
In addition to unregulated industries mentioned above, prediction markets will also have their use in betting and gambling.
4. Replacing escrow
This is how a blockchain can kick the middleman out of equation, with a smart contract acting as an escrow. If the previously defined action takes place, a smart contract can initiate the transfer of money from one account to the other.
One example of a working blockchain-based escrow is LocalEthereum, which is a smart contract-enabled exchange.
A smart contract could also act as an escrow in other markets — including real estates, wills and inheritance, as well as in jobs marketplaces like Upwork.
5. Digital identities
The market is already emerging for blockchain-based digital identity services. One example we have seen in the past is ID2020 Alliance, which has a backing of Microsoft, Mercy Corps, Hyperledger and the UN International Computing Center.
Another one is the smart contract-based identity management project uPort which provides users with the option to self-sovereign their identities. For instance, it lets travellers bind their passport with their uPort account and selectively provide access to their information. No one get to see or copy the passport information unless you authenticate it through your uPort app. For what it matters, something similar — as in selective access to information — is what JPMorgan is doing with its Quorum service…