Smart contracts have been making waves since the inception of the technology on the blockchain platform Ethereum. They are now used in the number of industries but haven’t fully lived to the hype. In this article, we are figuring out what challenges prevent smart contracts from widespread adoption in real estate transactions, particularly those related to insurance.
Before we dive into the details, let’s understand why exactly conventional contracts are becoming obsolete. The problem with traditional contracts is that they are meant to describe mutual terms of agreements, which are often ambiguous and can be interpreted from multiple angles. This is why parties can spend huge amounts of money and time arguing about what exactly the contractual terms are trying to enforce or what the exact duration of the agreement is. While smart contracts don’t solve the problem entirely, they can decrease the overall vagueness of conventional contracts.
The process of transferring property ownership has become stressful and often risky for both sides of real estate transactions. In very simple terms, the seller is hesitant to transfer the ownership before receiving funds, and the buyer is afraid to send money before receiving the property. Up to this point, the most effective method was to use third parties such as notaries to ensure agreement fulfillment and increase security, which, in turn, raised the costs associated with transferring property ownership and caused delays.
Essentially, smart contracts solve the aforementioned problem by consolidating all the functions of notaries and brokers into one autonomous mechanism.
To understand how it is even possible, let’s dive a little deeper into the technicalities of the technology. A smart contract is an electronic protocol that executes transactions when specific conditions embedded in the code are met. In a nutshell, what is conventionally expressed in a contract by sentences is expressed by smart contracts in a computer code. When parties enter into a smart contract, they automatically agree to fulfill it when the terms expressed in the contract are met. Not only does this eliminate the need for an intermediary but also decreases the risk of interpreting contractual conditions to one’s benefit and makes things like fulfillment delays clearly evident. Moreover, in case of a breach, smart contracts can also be set to automatically oblige the party responsible for the breach to pay penalties.
Read more: https://www.finextra.com/blogposting/19557/smart-contracts-in-real-estate-still-room-for-perfection