How Smart Contracts will Impact Your Business
In recent months, you may have heard the terms Bitcoin, Ethereum, or blockchain, and wondered how these technologies will affect your business or industry. The impact of blockchain technology to the business world will be monumental (http://www.computerweekly.com/feature/Blockchain-starts-to-prove-its-value-outside-of-finance). One of the major ways Blockchain will enhance business transactions is through the use of Smart Contracts.
What is a blockchain?
A blockchain is a decentralized digital ledger of economic transactions that records financial or asset transfers between parties. Since the ledger is decentralized, transactions are transparent and incorruptible. Nodes, computers connected to the blockchain network, perform the task of validating and relaying transactions. Bitcoin and Ethereum are two examples of a blockchain. The first, used for mining and trading cryptocurrency (i.e. Bitcoin) and the other for deploying smart contracts.
What are Smart Contracts?
A smart contract is a computer coded program that is executed within the blockchain network. The code contains the terms and conditions of the contract, which cannot be altered. This characteristic provides control and audibility for the contract, allowing such abilities as the maintaining of pricing and monitoring of inventory levels.
An example of how a smart contract is used, could be a manufacturer or supplier who issues a smart contract that includes an item description, price, quantity, shipment and payment terms. A buyer on the blockchain searches and finds this contract and accepts it. When the product is delivered to the buyer, the smart contract will handle the settlement of funds between the two parties and update the blockchain. The advantages of this approach are:
1) a transparent audit trail
2) real-time negotiation
3) faster settlement
4) can be easily integrated with real-time data provided by the Internet-of-Things (IOT)
5) eliminates the need for escrow services
These advantages lead to lower transaction costs and increased efficiency among all parties involved.
The impact of Smart Contracts will be felt in Financial Services, Manufacturing, Supply Chain Management, Real Estate, and Agriculture Sectors, to name a few.
The use of smart contracts is an emerging technology, but as blockchain startups mature and companies realize the benefits, it will become common place in your sector. Stay tune for more articles on how smart contracts can serve your company’s sector.