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As you can hear about smart contracts practically everywhere today, this guide will help you to better understand their nature and their role in transforming many processes.
Smart contracts based on blockchain technology conquer the fintech industry, transforming familiar processes. Learn how smart contracts work and how they can be applied to your business.
Among the many advantages of blockchain, decentralization is considered to be the most promising for many areas. So, fintech actively uses crypto smart contracts or digital contracts that can transform the whole industry in a short time. The use of such contracts excludes the participation of third parties, intermediaries and experts, which reduces the cost of services. Besides, this fully automates the process, because the system independently monitors the fulfillment of conditions. How is this possible? Read more about smart contracts in this guide.
The main idea of the crypto smart contracts was announced back in 1994. However, only recently technologies have reached the required level of development, allowing them to be implemented everywhere. The practice has already proven that smart contracts can be used in any transaction: from the sale of cryptocurrency to the purchase of real estate and insurance. It is based on the “if-then” principle, which allows fulfilling the terms of the contract correctly and with due care.
What are smart contracts itself? Since this is a digital contract, it does not have a paper form. In fact, this is code that is distributed on the blockchain, which ensures its security and anonymity. The terms of the contract are not stored in one place, so the possibility of its loss or change is excluded. Edits can only be made by the parties to the contract.
Moreover, smart contracts are self-executable. The easiest way to understand how smart contracts work is by exploring an example. We have already said above that the basis is the digital contracts is “if-when” principle. This means that when concluding a transaction, this condition is checked. For example, sale. As soon as the funds are credited to the account, the system checks the amount. If it matches the one specified in the terms and conditions of the contract, it is automatically executed. In this case, the buyer receives the goods. All this takes from a few seconds to several minutes.
Some advantages of blockchain smart contracts have already been announced above. However, their appeal is not limited to just one.
Security. Distribution on the blockchain ensures the safety of data and the inability to damage or destroy them. This is especially important for billing and other financial documentation.
Autonomy and automation. There is no need to monitor the implementation of the contract. As soon as the case occurs, specified in the conditions, the system itself executes everything necessary.
Trust. Since smart contracts are part of the blockchain, they are the same encrypted as all information on the network.
Speed. Any paper documents are processed manually. A smart contract is a code that is processed by the system in a matter of seconds.
Backup. Since this is blockchain, all data is distributed to all units on the network, you cannot worry about their safety.
Thanks to these advantages, smart contracts went beyond the conclusion of transactions exclusively in cryptocurrency. Experts predict that in the coming years, digital contracts will occupy up to 60% of global transactions in all areas.
Now that we know about the possibilities and advantages of smart contracts, the question arises: how to put them into practice? Smart contracts will be useful both to private businessmen and large business and even to the state. Studies show that the potential of this innovation is unlimited.
Conventionally, fintech smart contracts can be divided into those areas that are directly related to financial activities. Digital banking contracts that govern the relationship of enterprises or individuals with banks would be one big category. Smart insurance contracts can be distinguished into another separate large category.
As to regulating smart contracts, their application is mainly limited to a narrow scope. However, they are also widespread. Some call them the ideal way to comply with the rules and conditions of laws. Others predict that over time, smart contract technology will completely change the system of state elections and voting.
What is more, the smart contracts blockchain technology protects intellectual property. This is true not only for authors of creative works but also for protecting the content of any site. As soon as part of the work appears on the network, the smart contract will notify the copyright holder.
The same technology is used in healthcare. Electronic medical records are an excellent solution that allows accessing patient data in various clinics. There is no longer any need to store all data on paper. A smart contract opens access only to a limited number of persons (the patient and his doctors) and closes it to everyone else. All data is encrypted and securely protected.
Also, crypto smart contracts have proven themselves in management, entertainment, and even employee engagement. This is especially true when participants of the same event or project are located remotely from each other. For employee hiring agreements, process automation saves time. It is enough to include all the conditions in the contract and it will be executed automatically: as soon as the employee fulfills his conditions, he receives payment.
The simplicity, security and autonomy of crypto smart contracts make them incredibly convenient to use in various fields. Besides, they are perfectly combined with other modern technologies, increasing the efficiency and reliability of the processes. However, this technology is still developing, which suggests that its capabilities will increase in the future.
About the author: Betty Lockwood is a blogger, web developer, and caring mother. She loves to write about new technologies, e-commerce news, traveling, movies and kids. Betty is also a co-owner of Computools website. Follow Betty on Twitter.