In a world evolving towards decentralisation, embracing smart contracts in business is a game-changer, especially here in Africa. Smart contracts automate processes, enhance efficiency, and cut costs. With transparency and security at their core, thereby redefining how agreements are executed.
What's a smart contract?
A smart contract is simply a self-executing contract with the terms of the agreement directly written into code. It operates on a blockchain, a decentralised and distributed ledger technology.
• Key characteristics of a smart contract:
1. Code-Based Contracts/Self-executing: Smart contracts are written in a programming language and automatically execute when certain predefined conditions are met, unlike traditional contracts that required a third party to enforce.
2. Decentralised Execution: Smart contracts run on a decentralised network of computers (Blockchain), ensuring trust and security without relying on a central authority.
3. Transparent: All transactions and actions executed by a smart contract are recorded on the blockchain and are visible to all participants in the network.
4. Immutable: Once deployed on a blockchain, smart contracts are immutable. This means that their code cannot be altered or tampered with.
5. Efficiency: By automating processes and eliminating intermediaries, smart contracts enhance the efficiency of various business operations.
• Key components of a smart contract:
1. Blockchain: a decentralised ledger that stores and verifies the execution of smart contracts. It ensures transparency, security, and immutability.
2. Code: The programmatic logic instructions that define the smart contract's behavior. It specifies the actions to be taken and when certain conditions will be met.
3. Cryptocurrency: Smart contracts often involve the use of crypto to execute transactions.
How to apply smart contracts to a business:
Smart contracts can be applied in various ways to streamline processes, enhance efficiency, and reduce the need for intermediaries in business. Here are some ways to achieve that:
1. Financial Transactions: Payments can be set to be executed automatically when some predefined conditions are met. This can be an indication of a project milestone or delivery verification. Also, businesses dealing in loans can automate lending and repayment based on certain conditions.
2. Supply Chain Management: Enhance transparency and traceability in supply chains by automating contract conditions. Automate procurement processes, triggering orders and payments when specific conditions are met.
3. Legal Agreement:
• Escrow Services: Use smart contracts as escrow services, releasing funds only when predetermined conditions are fulfilled.
4. Real Estate:
• Property Transactions: Facilitate transparent and automated property transactions, including the transfer of ownership and handling of escrow. Automate rent payments and lease agreement enforcement.
5. Education:
• Credential Verification: Securely and efficiently verify academic credentials using smart contracts.
6. Intellectual Property:
• Royalty Payments: Use smart contracts to automate royalty payments for artists and content creators based on the usage of their intellectual property.
• Platforms supporting smart contracts:
1. Ethereum is known for pioneering smart contract functionality.
2. Binance Smart Chain (BSC): offers a platform for smart contract development and execution.
3. Cardano, a blockchain platform with a focus on security and scalability, supports smart contracts.
• Some businesses utilising smart contracts in Africa:
1. Bitland: Bitland is a Ghanaian startup that uses blockchain technology to help Ghanaians achieve property rights. The company was founded in 2015 due to the urgent need to improve land ownership.
2. House Africa: A Nigeria-based startup that uses smart contracts to verify and value properties With House Africa, your land will be registered on the blockchain.
3. Momint: A South African startup that uses smart contracts to tokenize and sell renewable energy assets.
• Common challenges of smart contracts and possible solutions:
1. Security Vulnerabilities:
• Challenge: Smart contracts can have coding vulnerabilities, leading to exploits and hacks.
• Solution: Thorough code auditing, testing, and adopting best practices in secure coding.
2. Immutability:
• Challenge: Once deployed, smart contracts are immutable, making it challenging to fix bugs or errors.
• Solution: Implement upgradeability mechanisms allowing for the modification or replacement of certain contract functions.
3. Complexity:
• Challenge: Understanding and developing smart contracts can be complex for non-technical users.
• Solution: Develop user-friendly interfaces and tools to abstract technical complexities. Provide educational resources where necessary.
In summary, the adoption of smart contracts in African business ecosystems holds great potential to drive efficiency, transparency, and inclusivity across various industries, contributing to the continent's economic development and technological advancement. However, careful consideration of the challenges is paramount.
