The idea of Smart contracts was first developed by Nick Szabo in 1996. Szabos concept was to create protocols to transfer data using complex mathematical algorithms. These algorithms would automatically process transactions if certain conditions were met. The process would be a fully automated one. In 1996 the technology did not exist for the concept to be fully realized and put into practice. In 2008 Bitcoin cryptocurrency was conceived and with it came blockchain technology which was a digital, distributed and decentralized database also known as the distributed ledger. This development would lead to the platform for the creation and development of Smart contracts. A few years later the Ethereum platform appeared and this would make it possible for Smart contracts to be developed, used and put into practice. Smart contracts were designed to be stored on the blockchain, be fully automated and could either replace or substitute traditional contracts. Program languages like C, Python and Java amongst others can be used to program Smart contracts. The same rules that apply to any legal contracts also apply to Smart contracts i.e. the same legal obligations, penalties, rules and benefits. Smart contracts also provide additional security, reduces costs and delays that can be associated with traditional contracts. How Smart contracts work A traditional ledger in any organization would be used to record transactions, trace assets, investments, and inventory. This would mean that several ledgers would need to be maintained throughout the organization and this would cause duplication of effort. Because theses ledgers would be stored on a central system it would also be susceptible to cyber-attacks, fraud and network downtime Smart contracts that utilize Blockchain technology and allows all the participants to share and interact with each other using a single ledger, agreement or transaction. Smart contracts are shared between members that execute the code independently and then checked by each member. The blockchain ledger ensures that all the data in the program are identical when the program is executed. When the participants execute program consensus should be reached meaning all members come to the same conclusion with the results recorded on the distributed ledger. Smart contracts operate by following a simple rule IFTTT if this then that statements, if this happens then ation the next sequence of events programmed into the Smart contract on the Blockchain. The design of the the blockchain ensures reliability and security ensuring that the transactions that happen cannot be changed, modified or edited. A simple example of a Smart contract could be compared to vending machine. Step 1 . A person would insert cash into the vending machine to make a certain purchase Step 2. the money inserted triggers an event where the vending machine enables the person to key in the code for the item the user wants to purchase Step 3. the person makes the selection for the desired item on the keypad Step 4. the vending machine then executes the selection and released the product with correct change if any is due Step 5. the person collects the product and any owed change Step 6. Transaction successfully completed and both parties are satisfied Smart contracts operate on the same principle code is designed to trigger a response when certain agreed conditions are met, transaction rules are enforced and verified and the transaction is processed. Benefits of Smart contracts Trust no third-party intermediaries are needed this allows for full control over the agreements Accuracy a Smart contract records all the terms and conditions in explicit detail Transparency the details of the Smart contract are visible to all relevant parties Security Smart contracts runs on the Blockchain and it allows for those transactions to be run very quickly Security Smart contracts will use the same security that crypto currencies use Paper free no paper required for Smart contracts no impact on the environment Three examples of implementation of Smart Contracts Smart contracts in Real Estate Buying a new property is still a time consuming and very inefficient process. These processes are largely paper based and still facilitated by real estate agents, banks, lawyers and the registration at a deeds office. This can lead to incorrect listings, rental scams and can create an opportunity for fraud to be committed. To address these inefficiencies, Smart contracts can be used to assist, automate and bridge the gap between all the parties involved in the process. Current process when purchasing a property Choose an agent Search for the property that you interested in View properties that are available Ensure credit score is high enough to qualify for the property Negotiate terms and conditions of purchase agreement Smart contracts can address some of the requirements listed above property searches can be done through the Blockchain using a Multi Listing System The MLS (Multi Listing Service) enables potentials buyers to view properties based on their requirements. Blockchain digital identities of assets and individuals can be used to conduct a background check on the potential buyers Smart contract is created on the blockchain with all terms and conditions attached The Smart contract can facilitate payment of the security deposit via a bank account Transaction is agreed upon by both parties and is electronically recorded Smart contracts in the Insurance industry Insurance has been considered as a grudge purchase by consumers and can only be tested once a claim has been submitted. The person makes regular payments while the insurer makes a promise to cover if or in case of possible damage. The flaw in this arrangement is that both parties dont trust each other. Current insurance flaws include Inefficient information between client and insurer Use of a middleman i.e. broker Manual claims process Delay in claims being processed and payment being made Smart contracts are able to bridge the gap between insurers and clients by offering the following advantages Correct risk evaluation of clients because of detailed records Lower administration cost fewer underwriters required Lower prices the risk associated with each client is unique and policies can be tailored according to the risk profile of each client Fraudulent claims can be detected earlier Automatic payments after uncontested claims are processed Secure distributed database of policy documents The thing to remember is that insurance companies incur costs even with any contract that they setup. These costs are eventually filter down to the consumer in the form of higher premiums. Smart contracts have been shown to be beneficial in the insurance industry by streamlining several activities and also offer clients transparency, trust and cost saving implications. Life Insurance Life insurance is one if the simplest if, then policies that can be used on Blockchain using a Smart contract. Once the policy holder has died the life insurer then pays out to the surviving family members. The policy usually requires proof of the deceased in the form of a death certificate and several documents needs to be submitted before the policy can be paid out. The problem arises if the policyholder has several life insurance policies with reside with different life insurance companies. Policy documents can be misplaced, lost or destroyed in fires or floods. Smart contracts can alleviate the problem by using Smart contracts to digitally store the information. This would allow the policy to be available to the policyholder, any beneficiaries and the insurance companies. An oracle can be configured to work with numerous blockchains, external sources, and any necessary entity involved with automating the execution of the smart contract. Final expenses insurance This is a type of insurance where a fixed amount is paid out upon the persons passing to help cover any funeral expenses. The Smart contract can perform the same function as that of a Life insurance contract.