Contracts are a huge part of doing business. The practice is as old as the legal profession. You’ll be hard pressed to complete a transaction where money changes hands where there isn’t a document outlining the specifics of the liability each party takes on by entering that financial agreement. We call them receipts, but in retail, they are a signed contract.
Today, there is a shift in the ways people are entering a contract. Using blockchain technology, businesses are solidifying their contracts, reducing process conflict and saving time. Blockchain offers faster, cheaper and more efficient options in which to enter a binding agreement with someone. Let’s take a look at how companies are going about using smart contracts.
What is a Smart Contract?
To understand how a smart contract works, you first need to understand how it is smart. Smart contracts are designed to work on clearly defined and conditional principles that work to resolve ownership only after those conditions are agreed upon. So, if you have a product you want to sell, but the buyer can only pay over time, you agree to hand over the product under the condition that the buyer pays four equal payments. After the third payment is made, the buyer doesn’t send another payment. It will be evident to the buyer, the seller and any intermediary or arbiter that not all the conditions of the contract have been met, because each action made by either party creates an individual block in the blockchain, and that information is not only encrypted, it is completely transparent. This means that it can be seen by all parties involved because the information is stored on every system that is in on the contract.
Why Would You Want to Use a Smart Contract?
The most advantageous part of the smart contract as compared to normal contracts is the speed in which agreements can be completed, but there are almost an endless number of superlatives when compared to traditional contracts. They include:
- Accuracy: One of the best features of a smart contract is that it records all of the information that needs to be known in explicit detail.
- Communication clarity: The explicit nature of the smart contract leaves no room for miscommunication, removing much of the liability and cutting down on inefficiency that comes as a result of misinterpretation.
- Transparency: All relevant parties would have a fully visible set of the terms and conditions set forth in the contract.
- Security: Smart contracts use the highest level of encryption available.
- Redundancy: Smart contracts save every transaction in explicit detail. If data were to be lost, it is easily retrievable.
- Trustworthy: Since smart contracts are made with some of the most secure, transparent and reliable tools available, there is no room for outside manipulation and error.
Where Will You Find Smart Contracts?
These contracts will be found in some of the most important transactions humans undertake. Some of the industries you may find smart contracts popping up in include banking, insurance, healthcare and real estate. In fact, anywhere you find the need for a lawyer, you may only need the use of a distributed smart contract.
Emerging technologies are changing the way people do business. For more information about blockchain or smart contracts, subscribe to our newsletter, or keep checking back at our blog.