Blockchain technologies have recently become one of the most discussed topics. Both business magazines and the Internet offer a multitude of articles about blockchain and its capabilities. However, blockchain is still closely associated with bitcoin and other new cryptocurrencies. Actually, it could be more properly compared with the Internet and emailing: the Internet is used for much more operations than just sending electronic letters. One of the most high-potential and popular blockchain technology nowadays is the smart contract. In fact, this is the first step helping to decentralize a relationship between two parties, like between a customer and a developer.
What is a Smart Contract and Why Industry Leaders Apply It?
In the traditional business model, there is always a third party that stands between the trading partners that are affirming the terms and conditions of a contract. The third party could be a bank, a law company, a government establishment, or another intermediary.
The blockchain has already proved itself as that a reliable decentralized system, which eliminates the need for the intermediary. Some experts even claim that smart contracts could in a few years replace lawyers. So what is a smart contract? The short answer: it is a computer code or a program containing a set of rules, which the parties to the contract agreed to follow for the duration of their interactions.
The underlying concept is to use smart contracts (a computer code) which are stored within the blockchain and would be automatically activated if certain conditions are met. The blockchain makes this kind of deals extremely safe and versatile: if one ledger becomes corrupted, the other one keeps all the information. This is only one of the advantages that smart contracts have.
– The smart contracts are immutable. It means all parties can access the contract, but no one can change it discreetly, all parties will automatically receive notification.
– Smart contracts are faster and more convenient. Companies don’t have to wait hours or days while lawyers prepare or authenticate the document. With smart contracts, parties can receive the documentation immediately.
– Another advantage is a small fee that is paid for a smart contract. The intermediary will ask for high payment for his services, while a computer code will cost a small amount.
– It can be easily used in any field and industry. Smart contracts could help to exchange anything of monetary value, from money to property and shares.
Smart contracts create a new type of business model built on trust. Immutability and distributed storage allow smart contracts to become a convenient instrument that can be applied for business agreements and transactions.
Smart Contracts Use Cases
The main task of the smart contracts is to improve the already existing business technologies and to make the ‘signing of the contract’ easier and faster. This is why many developers, distributors, and traders have already implemented this new type of contracts in their daily routine. Smart contracts have wide capabilities and could be used in almost any field: trading, healthcare, real estate, government establishments, entertainment, banking industry, insurance and so on. The most progressive companies use them to stay ahead of the curve.
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Smart Contracts and Banking Industry
The banking industry always looks for elegant, practical, and easy solutions for its customers. Smart contracts will surely replace traditional paper contracts in this field in a few years because they solve many problems of the traditional financial business. No more delays, inefficiencies, errors and high fees. A computer code stores all important information, provides superior security to contracts and reduces administrative and transactional costs associated with contracting itself. The blockchain network makes all deals completely secure.
Some of the daily banking operations are too complicated, time-consuming, and extremely expensive. For instance, customer verification and identification, a process called ‘Know your client’. Special smart contract checks the customer information faster, reduces the cost of customer acquisition and it takes only a few hours to open a new account. Today’s mortgage loan process is another problem where smart contract becomes a great solution. They could also save time and reduce as much as 22 percent of the fees for the mortgage processing.
Smart Contracts and Trading
The traditional trading contract constitutes a long negotiation process involving third parties, lawyers, different experts and lots of paperwork. A smart contract could make it easier, faster and less expensive for both parties. It also solves the problem of shipment delays – there would be no waiting for physical documents. Smart contracts are a secure and reliable technology that mitigates risks and improves process efficiency.
Tracking of goods is one of the biggest trading problems. Modern delivery systems still have quite a few weaknesses. But they could be improved with the smart contracts. Some industry leaders have already tried to use smart contract to track the whole process from the developing to delivering good to a buyer. The idea is easy: IoT devices enter the location data directly into a smart contract, which simplifies the tracking. Every customer is informed about any changes, such as the development process, packing, and location of goods. This type of advanced tracking significantly reduces the risk of fraud and theft.
Smart Contracts and Entertainment
The law protects intellectual property. However, it is not always easy to find the owner of the rights to a particular song or other work of art. It could be a person or a company, a recorder or a publisher, just naming a few examples. The world’s biggest companies implement smart contracts because this guarantees receiving of the royalty fee.
A blockchain technology helps to track all the ownership rights. This technology promotes the trust in the true ownership – as any change to the information on the blockchain requires an approbation from all parties on the network. The same smart contract ensures that a royalty payment is generated and paid immediately. This is a new way to protect intellectual property and guarantee the payment of the royalty fee.
The smart contracts are in many ways superior to the traditional ones. They make deals faster, easier and reduce the cost of many services. Smart contracts are completely secure and could be used in almost any field of business. Many big companies, developers, and traders have already come to value the benefits of smart contracts. Unfortunately, legal experts claim that the current legal system is not ready to legitimate smart contracts. However, fast development and widespread acceptance of the blockchain technologies will solve this problem as well.
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