Smart contracts
Smart contracts are essentially programs that run when certain criteria are satisfied and are recorded on a blockchain. They are often used to automate the implementation of an agreement so that all participants may be confident of the conclusion instantly, without the participation of an intermediary or time lost. They can also automate a workflow by automatically activating the next activity when certain circumstances are satisfied.
Smart contracts operate by executing basic “if/then” statements encoded into blockchain code. When preset circumstances are met and validated, a network of computers conducts the activities. These activities might include transferring payments to the proper parties, registering a vehicle, providing alerts, or issuing a ticket. Only those who have been granted permission can see the results.
A smart contract can have as many specifications as necessary to reassure the participants that the work will be executed correctly. Participants must identify how transactions and associated data are represented on the blockchain, agree on the “if/when” rules that govern those transactions, investigate all conceivable exceptions, and design a framework for resolving disputes in order to set the terms.
The smart contract can then be coded by a developer; however, firms that use blockchain for business are increasingly providing templates, web interfaces, and other online tools to facilitate smart contract construction.
Benefits of smart contracts
Smart Contracts are a faster, cheaper, and more secure way of executing and managing agreements. Some other benefits of smart contracts are discussed here:
- Accountability: The participants know the same information at the same time, which reduces the possibility of contract clause manipulation. Because smart contracts are built on blockchain, they ensure the immutability of data, allowing contracts and agreements to be created without the need for the parties to know each other and preventing potential violations of conditions or mistakes in contract administration and implementation. This openness provides the parties with security and confidence since the data and information relevant to the contract are available to them during the contract’s life cycle, and transactions are copied so that all parties involved have a record.
- Autonomy: Smart contracts do not require trusted third parties or human participation in the process, allowing the parties autonomy and independence. This intrinsic property of smart contracts provides additional benefits such as cost savings and increased process speed.
- Cost-cutting: This benefit is also associated with the removal of middlemen. The related expenses are minimised since there is no need to rely on a third party to verify the terms of the contract and offer the required trust. Intermediary costs are eliminated in this sort of contract.
- Speed: The elimination of intermediaries lowers both the economic and time costs. Because it is done automatically, it takes less time than contracts done manually and in the presence of a third party.
- Updates performed automatically: Because of its technical and autonomous character, the contract conditions are automatically altered and updated, eliminating not only the need for intermediaries but also the need for new processes to carry out these revisions.
Application of Smart Contracts in Financial services:
Smart contracts contribute to the transformation of traditional financial services in a variety of ways. In the case of insurance claims, they verify for errors, route them, and then send compensation to the user if everything checks up.
Smart contracts include essential bookkeeping capabilities and reduce the potential of accounting record intrusion. They also allow shareholders to participate in decision-making in a transparent manner. They also aid in trade clearing, when payments are transmitted once trade settlement amounts have been computed.
Smart Contracts in Warehouse Receipt Lending:
To improve and sustain the living conditions of marginal farmers by bringing negotiation and reducing various agriculture-related frauds, a blockchain-backed lending platform can play its role. It can help banks reduce the fraud risk in Warehouse receipt Finance and provide timely access to credit to Farmers and other stakeholders. This may assist farmers in obtaining the best price for their crops during harvesting. Lending can be done through a consortium that includes financiers, banks, and other stakeholders. On a single platform, the blockchain network with mobile app links banks, warehouses/collateral managers, and borrowers. Using blockchain’s tokenization and immutability capabilities, the network decreases lending risk for banks while smart contracts enable other participants boost efficiency.
We have innovators working on this use case and it is being implemented at different levels. To know more about it please write to us at open-innovator@quotients.com
