Smart Contracts in Enterprise Systems

Heba Waleed Mohamed

Supervised By:
Dr. Tarek El-Shishtawy
1. Introduction
Nowadays, enterprises face new challenges such as information
security, trust and transparency between different stakeholders,
decentralization of working processes and so on. The development
of blockchain technology and smart contracts provides new
opportunities for enterprises to address these problems. Blockchain
enabled smart contracts are computer programs that can be
consistently executed by a network of mutually distrusting nodes,
without the arbitration of a trusted authority. Smart contracts provide
enterprises the possibility to collaborate and execute self-enforcing
contract clauses in a blockchain network without the involvement of
a third-party. While smart contracts provide new options for
enterprises and several studies have been carried out on how smart
contracts can be applied to solve several issues affecting modern
enterprises, little is known about the adoption of smart contracts in
enterprises.

2. Description of Smart Contract

2.1 What is Smart Contract

Smart contracts are computerized transaction protocols that

automatically execute the terms of a contract. They operate without
the need for intermediaries, relying instead on code to execute
predefined actions when specific conditions are met. They offer high
efficiency in contracting processes and reduce the risks of malicious
and accidental exceptions. Smart contracts can perform specific
functions within contracts, such as making payments, and as
technology advances, more conditions can be programmed for
automatic execution. They are seen as additions to legal contracts
rather than substitutes. [4][1]
2.2 Types of Smart Contract

1. Smart Legal Contracts

The most common type of smart contracts, which are based on a
legal agreement with legal requirements. If set up correctly, such
a contract will be legally enforceable and require the parties to
meet their obligations. Failure to meet obligations can result in an
automatically initiated lawsuit. Smart Legal Contracts can be
designed for cryptocurrency transactions as well as real estate
registration or other applications. Most such smart contracts
underlie cryptocurrency exchanges, DeFi projects, NFT
marketplaces, and GameFi-projects. [1]

2. DAO (Decentralized Autonomous Organization)

Decentralized Autonomous Organizations work like traditional
organizations but in blockchain and under control of smart
contracts. That is, all the rules of the organization and the rights of
the participants are encoded with smart contracts which cannot
be changed or tampered with unnoticed by other participants and
without their agreement.
Examples of DAO smart contracts are Decentreland, Uniswap,
Polkadot, MarketDAO. These projects are managed by smart
contract token holders. They can make various proposals for
changes to the project, such as changing the blockchain code,
determining the structure of commissions, and voting on these
changes. [7]

3. Application Logic Contracts (ALC)

It consists of application-based code that typically remains
synced with various other blockchain contracts. It enables
interactions between various devices, like ALCs enable users to
 use NFT tokens in games or are responsible for linking the
blockchain to oracle programs, the Internet of Things (IoT) or
blockchain integration. Unlike the other types of smart contracts,
these are not signed between humans or organizations but
between machines and other contracts.

2.3 How Do Smart Contracts Work?

Simple "if/when...then..." phrases that are encoded into code on a

blockchain (Solidity language) are how smart contracts operate. A
network of computers executes the actions when predetermined
conditions are met and verified. These might include releasing
money to the legal owners, registering a car, notifying others, or
issuing a ticket. After the transaction is completes, the blockchain is
updated. This means that only those parties with authorization may
view the outcomes, and that the transaction itself cannot be altered.
A smart contract may have as many terms as necessary to ensure
the participants' satisfaction with the task's completion. Participants
must agree on the "if/when...then..." rules that govern those
transactions, investigate any potential exceptions, design a
framework for resolving disputes, and decide how transactions and
their data are recorded on the blockchain to set the conditions. A
developer may then code the smart contract; however, more and
more companies using blockchain technology for business are
offering templates, web interfaces, and other online tools to make
the process of building smart contracts easier.[3]
 2.4 Smart-Contracts Application in the Enterprise
Most smart contract projects in enterprise focus on sectors like
SCM, finance, healthcare, information security, smart city, and IoT
solutions due to their complex, multi-party processes requiring
trustless systems. Transparency and trust are key drivers, with
Ethereum and Hyperledger Fabric being the primary technologies
used, particularly for prototypes and implementations. Ethereum is
popular for prototyping, while Hyperledger Fabric dominates
implemented projects. Most projects are on permissioned networks
to address privacy concerns, with IBM being a significant contributor
and service provider for Hyperledger Fabric adoption.[2]

3. Smart Contract Model

The importance of smart contract integration of blockchain technology
become a focus area to develop because it gives peer to peer
transaction and database can be maintained publicly in a secure way in
a trustful environment.
A smart contract consists of the value, address, functions, and state. It
takes transaction as an input, executes the corresponding code, and
triggers the output events. Depending upon the function logic
implementation states are changes. All the transaction information is
present in a smart contract, and it executes automatically. The
programming language Solidity, used to implement the smart contract
in various blockchain platforms.[8]
4. Pros and Cons of Smart Contracts

4.1 Pros [5]

1. Security – Running the contract on decentralized blockchain

infrastructure ensures there is no central point of failure to attack,
no centralized intermediary to bribe, and no mechanism for either
party or a central admin to use to tamper with the outcome.
2. Reliability – Having the contract logic redundantly processed and
verified by a decentralized network of nodes provides strong
tamper-proof, uptime, and correctness guarantees that the
contract will execute on time according to its terms.
3. Equitable – Using a decentralized network to host and enforce the
terms of the agreement reduces the ability of a for-profit
middleman to use their position of privilege to rent-seek and
siphon off value.
4. Efficiency – Automating the backend processes of the
agreement—escrow, maintenance, execution, and/or
settlement—means neither party must wait for manual data to be
entered, the counterparty to fulfill their obligations, or a
middleman to process the transaction.
5. Cost-efficiency: By eliminating intermediaries and reducing
paperwork, smart contracts reduce transaction costs associated
with traditional contracts.

4.2 Cons [6]

1. Immutability
Modifying smart contract protocols is nearly impossible, and fixing
code errors can be costly and time-consuming. Even if smart
contracts conform to the laws of different countries, it might be
tough to guarantee that they are adhered to globally.
 2. Skills shortage
The creation of smart contracts demands expertise in software
engineering. Smart contract development is distinct from traditional
software development in that it requires coders with organizational
expertise and comprehension of non-traditional programming
languages such as Solidity. These skills are hard to come by.

3. Scalability Issues
Finally, there is the question of magnitude and scale. Visa can
currently process approximately 24,000 transactions per second.
According to Worldcoin’s 2023 update, Ethereum, the world’s biggest
blockchain for smart contracts, can only manage 30 transactions per
second.

5. Use cases of Smart Contracts [8]

• Healthcare
Blockchain technology helps to maintain the privacy of the patients and
maintain data in digital ledger format. A smart contract can be used in
that system to make the system more reliable and automated. Using
Smart contract human can write some term and condition which could
be applied once data are collected. Then it will execute these smart
contracts and trigger corresponding events.

• Real Estate
Real estate systems in the traditional way involve lots of risks as well as
time taking. It also passes through different stages of legal action are
also needed to lot of paper signings as well as manual verification of the
documents. Blockchain technology and a smart contract can overcome
the problem associated with real estate sector. A centralized system
can allow buying as well as selling properties without the third party. The
 document is also verified and validated digitally. All the documents are
also stored in digital ledger distributed database where everyone can
see.

• Financial System
Blockchain technology invented by Bitcoin cryptocurrency system,
initially used for the financial system only. Traditional banking systems
involve a third-party transferring money from one account to another
account. But in blockchain system, it is a peer-to-peer transaction, and
no central storage is used. Using smart contract and blockchain
technology financial sector can be beneficial. But still, a lot of research
needs to be done in this sector to implement the smart contract.

6. Conclusion
Smart contracts represent a transformative technology with significant
potential for enhancing enterprise systems. While they offer numerous
benefits such as automation, transparency, and security, challenges
related to code vulnerabilities, scalability, and regulatory frameworks
need to be addressed. Through effective modeling and implementation
strategies, coupled with real-world case studies, enterprises can
leverage smart contracts to drive innovation and efficiency in their
operations.
7. Reference

[1]. Tanel Kerikma¨e, Addi Rull Editors. " The Future of Law and
eTechnologies "(2016)
[2]. Chibuzor Udokwu1, Alexandr Kormiltsyn1, Kondwani
Thangalimodzi1 and Alex Norta. " An Exploration of Blockchain enabled
Smart-Contracts Application in the Enterprise " (2018)
[3]. https://www.ibm.com/topics/smart-contracts
[4]. Nick Szab. "Smart Contract" (1994)
[5]. https://chain.link/education/smart-contracts
[6]. https://www.spiceworks.com/tech/innovation/articles/what-are-
smart-
contracts/#:~:text=A%20smart%20contract%20is%20defined,program
ming%20languages%20such%20as%20Solidity
[7]. https://rva.solutions/blog/smart-contracts-types-and-application
[8]. Bhabendu Kumar Mohanta, Soumyashree S Panda, Debasish Jena."
An Overview of Smart Contract and Use cases in Blockchain
Technology" (2018)