The most promising application of blockchain is smart contracts. This is because the smart contracts are interoperable and incorruptible, which adds an extra layer of transparency and security.
It can boost the confidence of people and encourage them to move towards a fairer system. Now we shall know more about smart contracts.
What are Smart Contracts?
Traditionally, when two parties decide to enter into a contract, a document is drafted by lawyers that outline all mutually agreed-upon terms and conditions. Once both parties sign this document, it becomes legally enforceable.
Smart contracts, on the other hand, are self-executing contracts with the term and conditions of the agreement between the buyers and the sellers which is directly typed in the code. The code and the agreement exist in a decentralized, distributed blockchain network.
Smart contracts allow trusted transactions and agreements which are carried out between anonymous and separate parties. These agreements take place without the need of any central authority, the legal system, or any type of external enforcement mechanism. Smart contracts render transparent, traceable and irreversible transactions.
The reason why the users opt for the smart contract is that it’s faster and convenient. There is no need for a middleman which would be time-consuming and cost-effective. Another reason is, security and easy to us for exchange anything with monetary value, money, property and even shares.
Characteristics of Smart Contract
Smart contracts possess the capability to track performance in real time and save a huge amount of cost. In order to get external information, a smart contract needs information oracles, which feed the smart contract with external information.
Smart Contracts possess the following from the start:
- Tamper resistant
Smart Contracts can also be of more use by providing the following:
- Turn legal obligations into automated processes.
- Guarantee a greater degree of security.
- Reduce reliance on trusted intermediaries.
- Lower transaction costs.
What are the benefits of smart contracts?
Smart contracts have a lot of benefits. Now we’ll come across few of the benefits provided by smart contracts:
One of the most important parts of the smart contract is accuracy as all the minute details have to be recorded of the terms and conditions.
If any of the details are missed out, then there will be an error in the transaction. Because of which automated contracts avoid the pitfalls of manually filling out heaps of forms.
The terms and conditions of the contract are made visible to all the parties that are related to the contract. Once the contract is established, there is no way to change it. This avoids all the disputes that might take place in the future.
3. CLEAR COMMUNICATION
As the terms and conditions are given the priority while accurately establishing the contract, there can be no misunderstanding or miscommunication as everything is mentioned in the contract in detail.
In case of traditional contracts, a lot of time was consumed as the process was manually done. But now, everything runs on the software code and live on the internet. This helps in cutting down on the time and make the contract more effectively.
The smart contracts are one of the most secure things. They use the highest level of data encryption that is currently. Which is same as the standard used for the cryptocurrencies.
Who uses Smart Contracts?
The banking industry is ripe for disruption and cryptocurrencies themselves have already had a big impact. Five global banks are already building proof-of-concept systems using a trade finance and supply chain platform that uses smart contracts.
The claims process can take months and leave people with a shortfall while they’re waiting to receive reimbursement. At the same time, insurance companies are constantly fighting fraud and false claims. Therefore, Smart contracts are being used for insurance policies. Smart contracts could speed up the process while cutting fraud, which is good news for everyone.
The government too is making the use of the new technology. The smart contracts are being used at the state level. The transparency, traceability and irreversible feature of the smart contracts will help the government.
The air transport industry has also seen the potential of the blockchain. They have dived into the potential of the blockchain to store flight data and to use smart contracts to judge potentially conflicting data.