Smart Contracts: Unveiling the new era of financial inclusion
Blockchain technology is evolving at a never seen before speed. The world, currently owing to the pandemic, and inability to commute and physically interact, is looking for ways to digitalise and decentralize data.
Blockchain is moving beyond cryptocurrency, and it’s worth paying attention — especially since successful prototypes show that blockchain, also known as distributed ledger technology, will be transformative.
- Julie Sweet, CEO, Accenture.
Charles Hoskinson, founder of Cardano and co-founder of Ethereum, in his TEDxBermuda speech 7 years ago, said that The future will be decentralized. The future he was talking about is here.
This future, the era of the evolution of Blockchain gave birth to Smart Contracts. The question which now arises is what exactly do Smart Contracts mean? What revolutionary changes are smart contracts expected to bring?
Smart Contract is a term that describes a piece of computer code that automatically executes all or parts of an agreement when predetermined conditions are met. It is stored on a blockchain-based platform. There can be two ways of execution of a smart contract, the code can be a sole demonstration of an agreement between two parties, or it can complement a conventional contract, and only execute certain provisions.
To truly understand a new upcoming technology in-depth, we first need to know how that particular technology works. Smart contracts work on simple “if/when…then…” statements that are included in the code on a blockchain. As blockchain technology is distributed across a network of computer systems, that network executes the action when the predetermined conditions are met and verified. Once these actions and transactions are implemented, the blockchain is updated.
But wait a minute, why should we trust this smart contract? As mentioned above, smart contracts are stored on a blockchain, and so the code itself is replicated on multiple nodes in a blockchain. That’s how smart contracts benefit from the security, permanence and immutability that blockchain offers.
That said, we now know a bit about how smart contracts work on a blockchain. So naturally, as the next step of learning about smart contracts, let’s take a deep dive into the financial aspects of it.
Current market of smart contracts
Various industries can make the most out of the emerging technology of smart contracts that can increase efficiency. It provides advantages such as being accurate, time-saving, cost-effective, secure and transparent. These advantages offered are successively expected to drive the growth of the smart contract market size. With the technology maturing as time goes on, more organizations are anticipated to avail the benefits of it to reduce costs and enable fast and secure transactions.
Ethereum, a community-run public blockchain network is the most advanced technology used for coding and processing smart contracts. Thus, when it comes to holding the largest Smart Contracts Market share during the forecast period, it’s expected to be right at the top.
Several major companies like Facebook, Accenture, Samsung are testing the waters in the blockchain industry. The intersection between finance and technology is set to transform the trade financial institutes, says Atul Khekade, co-founder of XinFin. He explains that the FinTech industry has a growth rate of 23% every year. The benefits of blockchain are beginning to come to the attention of governments and traditional financial institutions alike.
According to Statista, throughout April 2021, Ethereum (ETH) price in USD kept growing in value. At one point, it even reached over 2,500 USD. Similar to Bitcoin (BTC), the price of ETH went up in 2021, yet the differences were completely different. Spending on blockchain solutions is bound to exceed $16 billion by 2023, according to CB Insights. The data proposes that 58 industries have realistically limitless potential.
But why is Ethereum leading the global markets?
Well, Vitalik Buterin, the co-founder of Ethereum has a profound role to play.
“Smart contracts are written in Solidity in Ethereum and Solidity is Turing complete.”
Solidity, one of the fastest-growing blockchain programming languages, was written for implementing smart contracts. Ether, the token used by Ethereum for its trade is proliferating too.
All this, and there still lingers a question. What does it have to do with Ethereum and its boom in the crypto market? Let’s talk about a few of the possible reasons.
a) Tokenization standards and open source code helped proliferate the Tokenization market.
b) Based on the above, when lending and trading came into the picture, the tokenization market formed a backbone for DeFi applications.
c) L1 and L2 implementations by XinFin and Polygon help proliferate business applications like TradeFinex based on Solidity smart contracts.
d) Introduction of wallet support for end-users for standard tokens.
The way of doing things is changing
The internet age is fast evolving, and slowly but surely, the old robust, opaque and tightly controlled ways of maintaining money need a few changes. Enter DeFi (Decentralized Finance), an open and global financial system built for the new age of netizens. DeFi provides you visibility over your money. With DeFi, global markets are always open, and no centralized authorities can block payments and deny you access to anything you wish to do.
For example, a contract that is designed to transfer money could be programmed to send money from Account A to Account B, and it will only do so as long as Account A has the funds required. These are the pre-defined terms on which the contract has to execute. No one can change the contract and add another account, say Account C, as a recipient to alter or steal funds.
The Crypto lending space is becoming increasingly important. Peer to Peer transactions and payments use Distributed Ledger Technology (DLT) to eradicate the need for trusted third parties. The approvals and processes performed by these traditional players are replaced by smart contracts. The ability to transact without an intermediary has the potential to unlock financial services for the unbanked, opening a whole level of opportunities for those deprived.
Still a bit hesitant?
When I came up with Ethereum, my first thought was, ‘Okay, this thing is too good to be true.’ As it turned out, the core Ethereum idea was good — fundamentally, completely sound.
Vitalik Buterin
Most of you folks might still be unconvinced, and you rightfully are. Scepticism follows whenever there’s a new technology we don’t know about. But, just think. What if with all the potential risks, we have twice as much to look forward to?
- Autonomy and savings:
Smart contracts work without a third party. Other intermediaries like agents, distributors, retailers and brokers aren’t needed to confirm the agreement. Third parties usually bring in the risk of manipulation or scam, which smart contracts hereby remove by eradicating the root of the issue. Moreover, the absence of intermediaries in smart contracts results in cost savings, so it’s a win on all ends.
2. Security and Auditability:
Smart contracts are encrypted and immutable. With appropriate controls built into smart contracts, any associated data is ‘immutable’. That means all transactions which have created or modified the associated data can be fully inspected.
We all know the pain of making one small blunder on the never-ending forms drafted during a contract. Proofreading the document is time-consuming, and even then there’s a slight chance that one of those sticky errors stick around. Bringing smart contracts into play results in the elimination of errors that arise due to the manual filling of numerous forms.
Unveiling the new era of Financial Inclusion
It’s the 21st century. The economy and society are growing in electrifying ways. New inventions, new jobs, a newer hierarchy of people and yet, the gap in the lifestyle in the evolving society is too big to ignore — the rich remain rich, the poor remain poor, but with the added obstacles of lack of human privileges.
Those who have started to notice this issue want to bridge the gap. Smart contracts have the ability to kickstart the changes required to resolve the issue. Over and over again, people aren’t allowed to use a number of financial services, which in turn prevents them from getting employed or building a decent life.
What smart contracts, DeFi and blockchain as a whole are doing is that they’re making sure everyone on the Internet, everyone with an Internet connection can avail of all the services provided, without anyone banning them from doing so. The developer’s community loves it when a new technology overtakes the market, as it gives them a new challenge to overcome. Developers all over the world have begun learning the skills required to develop a smart contract. These skills are providing new ways for developers to innovate, learn and earn. Innovations are what lead to the evolution of the market and provide better services to the public. They are also learning how to trade in the crypto world on platforms like XinFin, which help them understand the nitty-gritty workings of the vast world of crypto finance.
These technologies have already started ushering us into the era of financial inclusion, and it’s only going to evolve further.
Do comment if you want to give some additional information, correct a wrong or you just wanna talk! Feel free to reach out to me, and if this article helped you in any way possible, please do clap a few times :)
