10 Advantages of Using Smart Contracts
For as long as human beings have done business with one another, there have been contracts. A contract is a binding agreement between two or more parties and is usually enforceable by law.
Contracts first developed in ancient Rome. Over time, they have evolved in complexity and size. Today, they form the backbone of modern business and trade across the globe.
Most big business contracts are long, arduous, detailed documents with complicated language. They require lawyers and consultants to frame them, to decipher them, and if need be, to defend them.
The Future of Contracts
A powerful new technology has emerged in recent years, and it is disrupting the traditional ways of managing contracts. Enter, the blockchain platform and the world of smart contracts.
At it’s most basic form, a blockchain is a massive digital ledger of economic transactions. This ledger can be used to record anything of value and importance.
Typical use cases include birth and death certificates, deeds of ownership, financial accounts, medical procedures, claims, and anything else that can be recorded in computer code.
While it was created to support the Bitcoin cryptocurrency, developers quickly saw the potential for the blockchain platform to disrupt the entire system of traditional record-keeping.
Ethereum, another cryptocurrency with its proprietary blockchain platform, is widely considered to be the future technology for contracts.
What Are Smart Contracts?
Smart contracts are self-executing, self-enforcing contracts. They are governed by the explicit terms and conditions laid out within them.
These virtual agreements can facilitate the exchange of money, content, shares, property, or anything of value.
The self-executing nature of these contracts provides a tremendous opportunity for use in any field that relies on data to drive transactions.
What Are the Advantages of Smart Contracts?
These contracts already possess multiple advantages over traditional arrangements. This number is likely to increase in the future as the technology improves.
For now, here are ten benefits to using them.
One of the primary requirements of a smart contract is to record all terms and conditions in explicit detail.
This is a requirement because an omission could result in transaction errors. As a result, automated contracts avoid the pitfalls of manually filling out heaps of forms.
The terms and conditions of these contracts are fully visible and accessible to all relevant parties. There is no way to dispute them once the contract is established.
This facilitates total transparency of the transaction to all concerned parties.
3. Clear Communication
The need for accuracy in detailing the contract results in everything being explicit. There can be no room for miscommunication or misinterpretation.
Thus, smart contracts can drastically cut down on efficiency lost to gaps in communication.
These contracts run on software code and live on the internet. As a result, they can execute transactions very quickly. This speed can shave hours off many traditional business processes.
There is no need to process documents manually.
Automated contracts use the highest level of data encryption currently available, which is the same standard that modern crypto-currencies use. This level of protection makes them amongst the most secure items on the world wide web.
A natural byproduct of the speed and accuracy of these contracts is the efficiency with which they operate.
Higher efficiencies result in more value-generating transactions processed per unit of time.
7. Paper Free
Businesses across the globe are becoming increasingly conscious about their impact on the environment. Smart contracts enable the “go-green” movement because they live and breathe in the virtual world.
This removes the need for vast reams of paper.
8. Storage & Backup
These contracts record essential details in each transaction. Therefore, anytime your details are used in a contract, they are permanently stored for future records.
In the event of data loss, these attributes are easily retrievable.
Perhaps one of the most significant advantages of automated contracts is that they eliminate the need for a vast chain of middlemen.
There’s no need for lawyers, witnesses, banks and other intermediaries.
Smart contracts generate absolute confidence in their execution. The transparent, autonomous, and secure nature of the agreement removes any possibility of manipulation, bias, or error.
Once solemnized, the contract is executed automatically by the network.
11. Guaranteed Outcomes (Bonus)
Another attractive feature of these contracts may be the potential to reduce significantly or even eliminate the need for litigation and courts.
By using a self-executing contract, parties commit themselves to bind by the rules and determinations of the underlying code.
Where Do Smart Contracts Work Best?
The self-executing nature of these contracts makes them better suited to some industries over others.
Industries like banking, insurance, healthcare, and real estate stand to benefit from adopting this technology. These industries are built upon a system of clear rules, algorithms, and quantifiable terms of engagement.
Automated contracts are less suitable for industries where service levels are qualitative in nature, such as hospitality, food, and beverages.
Commodity futures contracts (or commodity futures) are a special category of financial derivatives. They are used by producers and consumers to hedge against future price fluctuations.
Today, most commodity futures are traded on a few centralized exchanges, such as the CME or Eurex.
These exchanges charge high fees, act as middlemen, and eat into the efficiency of the transaction.
In 2016, the CME earned $3.6 billion in revenues, with a net profit of 43%, nearly all of which came from fees generated by commodity futures.
At ChainTrade, we’re excited to be able to disrupt the $2 trillion USD commodities market with blockchain technology and smart contracts.
We will simplify and standardize the market, and are confident in our ability to revolutionize the future of exchange for food and raw materials.
Comment below if you’d like to talk more.