What are smart contracts for?

A smart contract, also known as a cryptocontract , is a computer program that directly controls the transfer of digital currencies or assets between parties under certain conditions.

Imagine that you need to sell a house. It’s a rather complicated and daunting process which entails a lot of paperwork, communication with different firms and people as well as a high levels of various risks. That’s why the absolute majority of house sellers decide to find an estate agent, who deals with all the paperwork, markets the property and acts as an intermediary when the negotiations begin, overseeing the deal until it’s closed. This amounts to quite a substantial financial loss for the seller.

It’s situations like this where smart contracts could really come in handy and effectively revolutionize an entire industry, all the while making the process a lot less of a burden. Perhaps most importantly, they would solve a trust issue. Smart contracts work on an ‘If-Then’ principle, which means that the ownership of the house will be passed on to the buyer only when the agreed upon amount of money is sent to the system.

They also work as escrow services, meaning that both the money and the ownership right will be stored in the system and distributed to the participating parties at exactly the same time. Moreover, the transaction is witnessed and verified by hundreds of people, so the faultless delivery is guaranteed. As trust between the parties is no longer an issue, there is no need for an intermediary. All the functions that an estate agent does can be pre-programmed into a smart contract, while simultaneously saving both the seller and the buyer considerable amounts of money.

smart contracts. They are capable of facilitating an exchange of money, property and anything else of value, ensuring the complete transparency, avoiding the services and accompanying charges of a middleman and eradicating the question of trust between the parties. The code of a particular smart contract includes all the terms and conditions agreed upon by the parties, and the information about the transaction itself is recorded in a Blockchain, a decentralized, distributed public ledger.

Smart contracts give you

Autonomy — Smart contracts eradicate the need for a third-party intermediary of facilitator, essentially giving you full control of the agreement.

Trust — No one can steal or lose any of your documents, as they are encrypted and safely stored on a secured, shared ledger.

Savings — Notaries, estate agents, advisors, assistance and many other intermediaries are not needed thanks to smart contracts. And, by extension, the extortionate fees associated with their services.

Safety — If implemented correctly, smart contracts are extremely difficult to hack. Moreover, perfect environments for smart contracts are protected with complex cryptography, which will keep your documents safe.

Efficiency — With smart contracts you will be saving a lot of time, normally wasted on manually processing heaps of paper documents, sending or transporting them to specific places, etc.

Examples of using smart contracts

just recently, the Depository Trust and Clearing Corporation (DTCC) and four major banks - Bank of America Merrill Lynch, Citi, Credit Suisse and J.P. Morgan - successfully tradedcredit default swaps on the Blockchain developed by Axoni, using smart contracts. The smart contract used held information such as individual trade details and counterparts risk metrics, which, according to a press release, provided a new level of transparency for partners and regulators.

consortium of 61 Japanese and South Korean banks has been testing Ripple’s Blockchain and smart contracts to enable cross-border money transfers between the two nations. The new system will roll-out in 2018. Even Sberbank, a Russian government-controlled bank, in a country which has been notoriously anti-cryptocurrency, the Ethereum’s Blockchain and the smart contracts enabled by it are being tested.

As smart contracts were developed in association with cryptocurrencies, they are still mostly being implemented into the world of finance and banking.

Nevertheless, this technology can be used by governments worldwide to make the voting system more accessible and transparent. Supply chains can use it to both monitor the goods and automate all the tasks and payments involved. Real estate, healthcare, taxes, insurance and countless other industries can benefit from the implementation of smart contracts and the benefits they have to offer.

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