The BlockChain is big news at the moment as a result of its contribution to cryptocurrencies and the rise in their popularity over the past 12 months, which has seen the Bitcoin price chart skyrocket, drop and then rise once again. Blockchain and cryptocurrencies go hand in hand, but there is so much more to this exciting technology than many people think. An exciting opportunity presented by blockchain technology is smart contracts, and this will be a highly valuable asset to a broad number of businesses around the world. Here we’re taking a closer look at the benefits of these smart contracts, and also their vulnerabilities.
What Are Smart Contracts?
As a result of the decentralized system that blockchain technology is based on, intermediaries are being cut out across the board. Smart contracts are essentially digital contracts which can see businesses exchange money, shares, property and anything else that can be exchanged in any way in a completely transparent manner. As well as acting as a legally binding contract, smart contracts can define the rules and penalties of an agreement in a transparent manner, further helping to improve the way businesses operate.
How Do Smart Contracts Work?
An option contract is written between parties and is written in code which is then stored in the blockchain. The entire process is pseudonymous in order to improve security levels, and the public ledger acts as the contact, instead of an intermediary. Then a strike price and expiration date will be hit, and the contract will execute itself in accordance with the coded terms. After this, regulators are able to utilize the blockchain in order to have an understanding of market activity without breaching the privacy of the parties involved. Once integrated into the blockchain, smart contracts cannot be changed, amended or manipulated in any way without this being seen and stored in the decentralized ledger.
The Benefits Of Smart Contracts
There are a number of benefits to smart contracts including:
- Autonomy – With no need to rely on a broker, lawyer or other intermediaries, the danger of human error and manipulation is entirely minimized. Execution is managed entirely through the network, automatically.
- Encryption – As a result of all data being stored and encrypted on a public ledger, there’s no way for any form of documentation to be misplaced, lost or stolen. The entire process is not only completely secure, but it is entirely transparent.
- Backup – The way a blockchain ledger works is that all documents are duplicated in order to guarantee transparency. As a result, there is no way that anything can be lost.
- Speed – Legal contracts can take a significant amount of time, money and paperwork. Documents need to be manually processed, and intermediaries can slow the process down even further. Smart contracts offer unrivaled speed, which reduces processing time and ensure all business gets underway as soon as possible.
- Money Saving – As previously mentioned, the key benefit to smart contracts is a much cheaper way to secure deals, as intermediaries are cut out of the process completely.
The Vulnerabilities Of Smart Contracts
Despite having a huge number of benefits, with any new technology comes a number of vulnerabilities. Firstly, due to the anonymous nature of these smart contracts and the decentralized nature of the public ledger, governments would have a significant amount of trouble regulating how these are created and run. In addition to this, if any issues arise with the contract, such as an apartment being condemned prior to the arrival of the rental date, it is likely that the contract will still go ahead regardless, and rescinding it is almost impossible.
Despite some of the vulnerabilities with smart contracts, and further research and development needing to be integrated before businesses take this on full time, smart contracts are likely to be the future of how deals and negotiations operate.