Tag: Smart Contract benefits (Page 1 of 2)

Smart contracts can handle large numbers of virtual coins worth hundreds of dollars apiece, easily making financial incentives high enough to attract adversaries. Unlike traditional distributed application platforms, smart contract platforms such as Ethereum operate in open (or permission-less) networks into which arbitrary participants can join. Thus, their execution is vulnerable to manipulation by random adversaries—a threat that is restricted to accidental failures in traditional permissioned networks such as centralized cloud services.

Smart contracts have some limitations. Smart contracts can suffer from “hidden knowledge” and we still need a third party in the following case: arbitration, transactional attorneys, programmers, and third party involvement to structure the contracts. The ability to integrate external data is a major concern as it represents a real challenge.

There are several potential business advantages when using smart contracts.

Cost-efficiency. Smart contracts eliminate many operational expenses and save resources, including the personnel needed to monitor their progress.

Processing speed. Smart contracts run on automated processes and, in most cases, can eliminate human involvement, increasing the speed of business transactions stipulated in the contract.

Let’s consider a real-life scenario in which smart contracts are used. Rachel is at the airport, and her flight is delayed. AXA, an insurance company, provides flight delay insurance utilizing Ethereum smart contracts. This insurance compensates Rachel in such a case. How? The smart contract is linked to the database recording flight status. The smart contract is created based on terms and conditions.

The first question that must have come to your mind is, why do we even need a smart contract?

To understand that, consider that you are buying a property for which you need to request a mortgage loan from your bank. Funds approvals and deposit is a multi-step process that involves many parties and lots of regulatory paperwork.

Smart contracts are perfectly suited for agreements between two parties without third-party validation, such as trading in over-the-counter derivatives and the execution of contracts when the triggering event can be measured digitally, eg digital payments, changes in public registries and weather information as published by an official source.

Business leaders who may not be closely following blockchain developments should consider examining the technology and evaluate how it can be paired with smart contracts to drive efficiencies or new business capabilities. Operations executives should look to their own processes to evaluate where smart contracts may be applicable.

The smart contract is an “intelligent contract” generated by an automated computer program. This computer protocol automates an action when prerequisite conditions are met.

The objective of the smart contract is to make it possible to carry out all types of transactions, mostly financial (not exclusively).