Understanding Smart Contracts in the most Simplified way
In order to understand smart contracts in a simplistic way, we need to first visualize how it would work in our day to day life. Let’s take an example.
Jack, the tenant, hasn’t paid his rent for 6 months. The landlord is helpless. He cannot afford a lawyer. Even courts take almost few months to enforce action. The only option left for landlord is to persuade Jack for his monthly house rent. Jack always promises to pay later but never does.
What can the landlord do to receive the house rental on time? The landlord must find a way to make Jack pay monthly in a time-based trigger fashion.
There needs to be a predetermined date on which agreed amount is transferred from Jack’s bank account to the landlord’s account. Both the tenant’s and the landlord’s bank will have a history of payment records. What if house rental contract could self-execute automatically when such conditions are met? For example, if the entire rent payment process was digitally monitored and executed with the following conditional (code),
If (“Today’s date” = 30)
{
THEN “$500 is auto-transferred from Jack’s account to the landlord’s account”,
}
Will this help resolve the problem of irregular rent payment? Of course! The landlord will no longer have to depend on Jack to get the rent transferred to his bank account. Both their bank will be the part of a private network. This idea is the very foundation of smart contracts. Smart contracts help in the exchange of property, money, shares, or anything of value in a conflict-free way without requiring the services of middlemen.
According to Investopedia, “Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. The code and the agreements contained therein exist across a distributed, decentralized Blockchain network.”
Smart contracts allow trusted transactions and agreements to be executed among anonymous parties without any central authority or third-party involvement. The transactions made using smart contracts are transparent, traceable and irreversible.
How Smart Contracts Work?
The most commonly used platform for creating smart contracts is Ethereum. Ethereum is a public (distributed) platform based on Blockchain technology. The token used for carrying out transactions on Ethereum platform using smart contracts are called Ether (ETH).
Smart contracts are pre-written computer codes that are stored and replicated on the Blockchain. The codes are executed and run by the network of computers running the Blockchain. When a certain condition is met, the change is automatically updated on the ledger.
The following diagram shows, in case of a trade transaction, how a buyer would send money to a seller through smart contracts:
The Key Benefits of Smart Contracts
The following is a rundown on the major advantages of smart contracts:
Autonomy- Stakeholders can directly enter into mutual agreements without depending on intermediaries.
Transparency- Smart contracts create an environment of trust as the logic and information contained in the contract is available to all parties in the Blockchain network.
Speed- smart contracts save a lot of time by eliminating the need for manual paper documentation.
Almost real-time execution- As soon as the necessary criteria are satisfied, contracts are executed almost simultaneously across all participating computers.
The Role of Smart Contracts in Commodities Trading
As blockchain is disrupting a number of industries around the world, commodity trading industry has not been left untouched. The most important problem of mistrust between the trading partners has been addressed for the first time after the arrival of smart contracts. Other important issues like huge number of middlemen, slow and error-prone manual documentation process, systematic abuse and high costs can be easily resolved with right implementation of smart contracts.
Introducing KRATOS — the commodities trading platform run on smart contracts.
KRATOS is a decentralized commodities trading platform developed by ARKRATOS, a Blockchain lab based in Singapore. The platform is built on Ethereum and uses smart contracts to eliminate the need for manual paper documentation and unnecessary middlemen. This enhance transparency and efficiency as well as reduce the time and cost involved in the trade process.
Not just commodity trading industry but also other industries such as insurance, government and legal, to name a few, have realised importance of Blockchain and Smart Contracts. No wonder many commodity trading firms are using these concepts for a more efficient trading experience.
About Kratos
Our Flagship product KRATOS™ is a decentralized commodities trading platform. KRATOS™ is built on Ethereum and it uses smart contracts to remove the need for unnecessary middlemen and paper documentation, to enhance transparency and efficiency as well as to lower the cost and time involved in the trade process. Currently, in the beta testing phase, KRATOS™ will be released soon.
Email us at contact@triterras.com
