Paper contracts can take weeks to travel around the globe, while digital documents are simple to forge. Is there a method to automate transactions to make them smoother, more efficient and secure for all parties? Leaders are looking at blockchain and smart contracts as a viable solution.
Blockchain technology is making notable interest across a wide range of industries. As the field of applications for blockchains grows, industry leaders are customizing and tailoring the technology according to their needs.
What are Blockchain Based Smart Contracts?
Blockchain-based smart contracts: self-executing code on a blockchain that automatically performs the terms of an agreement between parties.
Smart contracts represent a next step in the progression of blockchains from a financial transaction protocol to an all-purpose utility. They are software codes, not contracts in the legal sense, that extend blockchains utility from simply keeping a record of financial transaction entries to automatically implementing terms of multiparty agreements.
Smart contracts are executed by a computer network that uses consensus protocols to agree upon the sequence of actions resulting from the contract’s code. The result is a method by which parties can agree upon terms and trust that they will be executed automatically, with reduced risk of error or manipulation.
Technology leaders envision many applications for blockchain-based smart contracts, from validating loan eligibility to executing transfer pricing agreements between subsidiaries.
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Blockchain Based Smart Contract Benefits
For a wide range of potential applications, blockchain-based smart contracts could offer a number of benefits:
- Speed and real-time updates: Smart contracts use software code to automate tasks that are accomplished through manual means, they can increase the speed of a wide variety of business processes.
- Accuracy: Automated transactions are not only faster but less prone to manual error.
- Lower execution risk: The decentralized process of execution virtually reduces the risk of manipulation or errors, since execution is managed automatically by the network rather than an individual party.
- Fewer intermediaries: Smart contracts can reduce or eliminate dependence on third-party intermediaries that provide “trust” services.
- Lower cost: New processes enabled by smart contracts need less human intervention and fewer intermediaries and will therefore reduce costs.
- New business or operational models: Smart contracts provide a low-cost way of assuring that the transactions are reliably performed as agreed upon, they will enable new kinds of businesses, from peer-to-peer renewable energy trading to automated access to vehicles.
