Every day is now an opportunity to discover a new application for blockchain technology. After successfully backing up the revolutionary cryptocurrency, the blockchain brings to the fore strategic evolution in various industries including web security, logistics, and even trade finance. However, the advance evident of Blockchain is its growing function as a unique payment solution. And this rapid adoption is the embrace of smart contracts.
In a nutshell, smart contracts are referred to as a form of automated contracts using pre-defined rules to expedite the exchange of almost any service or good. The main principle is to propel transparent transactions along with lowering fees and allaying the chance for conflict over nonperformance.
However, unlike conventional contracts, smart contracts leave no room for interpretation. It’s because of all terms are predetermined. They are automatically enforced by the contract itself.
Let’s understand smart contracts with a simple example
In this instance, a pizzeria promises to deliver a pie in 30 minutes or money back guaranteed. The pizzeria then creates a smart contract with a customer ordering a pizza. The customer would then put the amount in escrow. If the pizza is delivered within the stipulated time, the funds are automatically released. If the pizzeria fails to deliver the order within 30 minutes, the funds held in escrow will be returned to the customer. Although overgeneralized, this example perfectly illustrates how smart contracts can be applied to any activity involving any sort of contract between two or more parties, to establish trust and security.
Filling the gap of the ingenuity of Blockchain with Modern Smart Contracts:
Smart contracts are designed to process specially designed functions and tasks without any intervention of any party involved in the contract as it could breach the said contract.
The reason for keeping funds in escrow, for example, is resolved by smart contracts. That’s even too without the requirement for a complicated legal framework that involves fees or a broker. Further, if the seller falls short to deliver on the terms mentioned in the contract, the other party keeps the funds. The vice-versa is also possible if the buyer is not able to post the funds in escrow
The Automation Impact:
Ultimately, the adoption of smart contracts may owe its success to two prominent pillars: the cost saving that it brings and automation. Foremost, transferring of funds within a digital network becomes much faster than conventional baking methods. If digital wallets on both sides of a transaction can be validated, it can create an environment of trust among both parties. Further, it will enable them to collaborate without any fear of loss or the need for building confidence.
Other than saving legal expenses by building templates, enforcement becomes a much cost-effective affair. Also, transaction times can be decreased significantly. Moreover, the time taken from contract inception to completion is also gets reduced, save money and reduce expenditures associated with back-office processes. With the smart contracts placed, all these activities can be executed automatically as a function of its design. Indeed, reducing the likelihood of contract failure or any fraud.
It’s the numerous functional advantage of smart contracts, they are the best innovations to accompany blockchain development landscape. Apart from assisting uninterested parties to embrace the blockchain for agreements and payments, the security offered by smart contracts offers a win-win situation for all parties involved.