Smart contracts are a blockchain application. Smart contract use cases extend beyond cryptocurrency transactions and improve numerous industries. However, since this is an emerging technology, awareness about smart contracts remains limited. In this article, we will explore smart contract use cases in different industries to help users identify how they can leverage smart contracts to reduce their costs and increase compliance.
Common use cases
Cryptocurrencies and smart contracts have allowed decentralized finance platforms to provide financial services without a need for a middleman.DeFi had a total value locked of $94 billion by end of 2021. DeFi has evolved to be more than just peer-to-peer transactions. Smart contracts have enabled sophisticated transactions such as lending, borrowing, and derivative transactions on DeFi platforms. For example:
- AAVE is a DeFi platform that allows borrowing and lending in different cryptocurrencies.
- Opyn is a DeFi derivative trading platform that utilizes smart contracts for options trading.
$17 billion worth of Non-fungible tokens (NFTs) were traded in 2021, making it one of the most impactful smart contract use cases. Even though the market has cooled down in the 2nd quarter of 2022, NFTs have real-life use cases which can lead to long-term use of NFTs.
Smart contracts have enabled the creation of non-fungible tokens (NFTs) by allocating ownership and managing the transferability of NFTs. These contracts can also be modified to include additional features such as royalty payments and access rights to a platform or software.
Common B2B use cases
Smart contracts can simplify and facilitate royalty payments. They can record the ownership and other aspects of digital copyright assets such as digital ID or fingerprints on the blockchain.
For example, artists who mint their NFTs can include a smart contract that enables them to receive a percentage of subsequent sales of the NFT.
A data marketplace is a platform where users buy or sell different types of data sets and data streams from various sources. There are innovative data marketplaces that enable buyers to purchase data streams through automated smart contracts. Datapace and Ocean Protocol are example providers.
Financial Data Recording
Organizations can use smart contracts for accurate, transparent data recording while improving speed and security. A smart contract enables uniform financial data-keeping across organizations which eliminate the need to exchange other documents such as invoice images. It improves financial reporting and the integrity of data which supports increased market stability.
Figure 1. The current state of financial reporting vs future state of financial reporting
Industry-specific use cases
Figure 2. P2E interest over time
Play-to-earn (P2E) games start to become very popular in 2021. Smart contracts in games are used to enable the players to do common transactions such as buying and selling items and game-specific actions such as waging wars for loot, breeding characters and so on. For example:
- Axie Infinity is one of the most popular P2E games. It has different types of smart contracts that are used for different activities in the game such as selling land, reward claiming, and breeding.
- Fantasy sports market is expected to grow by more than 7% CAGR until 2025 according to PwC. It has dealt with scandals before due to lack of transparency but the use of smart contracts can democratize this fast-growing industry and bring transparency to it. It is possible to incorporate smart contracts that get information based on the real-life performance of athletes and change the scores of the fantasy teams accordingly.
In healthcare, archival data of patients needs to automatically become immutable and accessible only to specific researchers. For example, Encrypgen uses smart contracts to transfer patients’ DNA data to researchers for clinical trial purposes. With genomic data, researchers can find better treatments and cures for diseases by using DNA data and simulations. This blockchain solution combines DNA data and payment data on the blockchain, facilitating data access, payments and keeping record of parties that access specific DNA data.
The global market for blockchain in insurance is expected to be $1.39 billion in 2023 with a compound annual growth rate of 85 percent. Smart contracts can improve insurance processes by automating claims management & data collection. For example:
- Large insurance companies have been experimenting with blockchain technology. In 2017 AXA insurance launched an insurance product Fizzy that used smart contract technology to deal with flight delay insurance claims. The smart contract is connected to global air traffic databases so that when an over two hours delay occurs, payment is automatically triggered. Fizzy was ultimately shut down in 2019 due to lack of demand for blockchain-based insurance products.
- B3i is an initiative supported by major global insurers and reinsurers. It provides insurance solutions on a blockchain platform. For example, they provide smart contracts for reinsurers where contract terms can be parametrized.
- Arbol is a fintech company that focuses on parametric insurance. They provide weather and climate coverage with Ethereum-based smart contracts for the agriculture, energy, maritime, and hospitality industry. Smart contracts receive the weather data almost in real-time and pay the correct party when the specified event happens.
Figure 3. Workflow in Arbol
- Insurwave, a joint venture between EY and Guardtime, leverages smart contracts to provide blockchain-based solutions for insurance companies. They improve operational efficiencies by automating contract execution and improving multi-party consensus. They claim that their solutions decrease administrative time & costs by up to 70%.
Though smart contracts are a disruptive technology that has the potential to change the way insurers work, it’s not the only digital technology insurers are leveraging nowadays. To understand more about digital transformation, read top digital transformation applications in the insurance industry
Supply Chain Management
Supply chain management is the management of the flow of goods and involves the active streamlining of a business’s supply-side activities. In a supply chain network, once an item reaches the final destination, the ownership status of the item changes. With smart contracts, everyone in the supply chain can track the location of the item with the help of IoT sensors and smart contracts. If an item is lost during the process, smart contracts can detect its location. Smart contracts can also automate routine tasks and payments so organizations don’t need to communicate via documents. For example:
- Walmart has been able to track the sources of the products using smart contracts in the blockchain system.
- HomeDepot has improved its vendor management process by using blockchain and smart contracts that reduce the time it takes to resolve discrepancies with the vendors. Vendors and retailers can view the same information at the same time, hence reducing the time spent on disputes and improving invoice management.
A smart contract between a manufacturer and a retailer may include the following terms:
- The cost of manufacturing items,
- The time between receiving that order and shipping
- Penalty and bonus clauses
- Payment terms for compensating invoices
To learn more about supply chain digital transformation, feel free to check our article.
90% of international trade is carried with ships. The typical shipping process involves many parties and many documents. For instance, shipping of a flower container from Kenya to Rotterdam resulted in nearly 200 communication documents. The massive amount of documents and parties involved can easily cause inefficiencies and problems along the supply chain due to communication and disagreement between parties. Smart contracts can solve this problem by providing a single source where all information is stored in a unified format that can be easily communicated to the relevant parties.
TradeLens, a joint venture between IBM & Mersek, uses smart contracts to facilitate collaboration between parties in international trade.
International trade finance
Acquiring financing has been a major problem for SMEs, especially after the 2008 global financial crisis. It is estimated that over 50% of trade financing requests of SMEs get rejected. This is mostly due to complications in verifying information by banks which results in a lost opportunity for SMEs to contribute to the global economy. Smart contracts can remedy this problem by:
- Reducing the trust needed between parties as contracts are automatically executed upon duty fulfillment of the other party.
- Increase document processing speed as all documents will be available digitally.
Figure 4. Trade finance process using smart contracts
we.trade, a joint venture between 12 banks, has been offering smart contracts. It eliminates credit risk by ensuring that when one party completes its duties that are written in the smart contract, the payment is done automatically.
Smart contracts can speed up the process of property ownership changes. Property ownership change contracts can be programmed and executed automatically. For example, once the buyer makes the payment to the seller, the smart contract can automatically change ownership of the asset based on the payment information on the blockchain. For instance, Propy enabled the world’s first property transaction using smart contracts in 2017. Their first transaction was a $60,000 apartment in Ukraine. The same house was sold as an NFT in 2021 for $93,000 using smart contracts.
Properties can also be rented by using smart contracts: For instance, Rent Peacefully allows renting and listing properties on the Ethereum blockchain using smart contracts. One advantage that tenants have on Rent Peacefully is that when a maintenance order is submitted to the blockchain, the smart contract realizes this and locks the rent until the problem is solved
Real estate investing
Real estate ownership can be tokenized and sold like a real estate investment trust (REIT). Smart contracts can be written for real estate transactions so they provide rental income or dividends to the holders. For example, Reinno provides real estate ownership tokenization which delivers passive income to the token holders.
And if you still have questions about smart contracts, we’d like to help:
This article was originally written by former AIMultiple industry analyst Arshia Mojtahedi and reviewed by Cem Dilmegani.
Cem has been the principal analyst at AIMultiple since 2017. AIMultiple informs hundreds of thousands of businesses (as per similarWeb) including 60% of Fortune 500 every month.
Cem's work has been cited by leading global publications including Business Insider, Forbes, Washington Post, global firms like Deloitte, HPE, NGOs like World Economic Forum and supranational organizations like European Commission. You can see more reputable companies and media that referenced AIMultiple.
Throughout his career, Cem served as a tech consultant, tech buyer and tech entrepreneur. He advised businesses on their enterprise software, automation, cloud, AI / ML and other technology related decisions at McKinsey & Company and Altman Solon for more than a decade. He also published a McKinsey report on digitalization.
He led technology strategy and procurement of a telco while reporting to the CEO. He has also led commercial growth of deep tech company Hypatos that reached a 7 digit annual recurring revenue and a 9 digit valuation from 0 within 2 years. Cem's work in Hypatos was covered by leading technology publications like TechCrunch and Business Insider.
Cem regularly speaks at international technology conferences. He graduated from Bogazici University as a computer engineer and holds an MBA from Columbia Business School.
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