Using smart contracts and their benefits
A smart contract trade finance scheme is much faster than a traditional trade finance scheme for reasons: no intermediaries, no bank guarantees for transactions and no letters of credit required. Smart contract trade transaction financing takes place on the blockchain network. And smart contract development service helps to create a contract exactly for your purposes, it is very important.
Properties of a smart contract
There are three main properties of smart contracts:
- The ability to monitor contract execution at all stages.
- Creation of an audit trail using a chronological sequence of the actions of a contract participant.
- Data protection from third parties with respect to intrusion, modification, control of the contract, its signing and further execution.
Where smart contracts are used
Smart contracts are used in the financial sector, in the banking sector, in insurance, in initial offerings of tokens (ICO), as well as in other areas. Let’s take a closer look.
- Initial token offering (ICO): a company creates its own digital tokens on one of the existing platforms, such as Ethereum. The tokens can then be sold, ensuring investment in the project. When using the Ethereum platform, the investor sends the platform’s internal tokens (ETH) to a smart contract responsible for selling the issuer’s digital tokens. The next step: an open and valid smart contract credits the issuer’s digital tokens to the investor’s account.
- Banking: smart contracts allow banks to reduce costs by automating the conclusion and execution of bank contracts, e.g. in mortgage lending, small business loans, etc.
- Insurance: smart contracts allow to optimize insurance business processes: insurance accounting, workflow, processing of insurance claims, compensation payments.
- Public services: smart contracts facilitate voting procedures, organization of electronic document storage, and, in the long run, increase transparency of the public sector, reduce corruption and distortion of information.
- Other spheres: an organization operates through smart contracts or a Decentralized Autonomous Organization (DAO). The idea is that the company is managed and all decisions are made by a decentralized vote of the token owners. Examples of such digital companies: The DAO (investment projects, the firm closed due to cyber-fraud), Digix (creation of stable cryptocurrency with a gold reserve).
Prospects for smart contracts
Smart contracts based on cryptography are the most secure tool for transactions in the online space. The prospects for the development of smart contracts in the field of blockchain technology are quite extensive. These include:
- Automating processes: compared to the standard contract execution mechanism, the contract is made faster by automating processes. Checks, calculations and other actions are performed in a single moment and in the right sequence. Another convenience of this tool is that all documentation on the transaction is contained within a single smart contract.
- Eliminating intermediaries: Without intermediaries transaction terms become more favorable, time and financial costs are reduced.
New business models: application of smart contracts gives impetus to development of new business models, which increases competition and develops new services in the financial market.