The idea of smart contracts has been around since 1994, but it did not gain traction. With the advent of blockchain technology, however, it is becoming more of a reality. One day, people in many industries, including casino online Canada companies, may use it to execute contracts.
Is it the future, and how will it change the future? Let us visit this technology today and see what we can learn from it.
What Is a Smart Contract?
A smart contract is a process that involves the digital assets of two parties. In this case, some of the parties, or all of them, can put or “deposit” an asset.
The way it works is divided into four stages:
- Pre-defined contract
During the pre-defined event, all parties going into the contract will agree on the terms and conditions of the contract. In the event part, the contract is triggered. The contract does not happen yet. There must be an event that triggers the contract to happen.
It is during the execution phase when the contract actually happens. This execution is automatic, and people no longer have to be involved. What it means is that for as long as an event triggers the contract, the person involved does not have to press a button or sign anything. The final phase is Settlement — it is the situation where the contract has been executed without fail.
Why Use Blockchain Technology?
The people who want to execute contracts with blockchain want to do so because blockchain technology is immutable. It cannot be changed. Once the contract has been executed, there is no turning back. It is not like issuing a check where you can contact your bank and say you want to hold the check.
Blockchain technology possesses some distinct features that make it an ideal foundation for smart contracts.
Here are some of these features:
- Blockchain is not governed by a single entity; it is decentralized, so there is no single authority that runs it
- All transactions in the blockchain community are recorded in a shared ledger; this ledger cannot disappear as it has copies
- All transactions can be verified and are almost impossible to tamper
- Every transaction is publicly available.
Because of the innate properties of blockchain, the smart contract can also get rid of third-party entities that can influence the contract.
What Makes the Smart Contract Special?
Smart contracts are excellent for the benefits that they offer. For example, a smart contract will only take a few minutes to execute, while traditional financial contracts can take three days.
The remittance of money is automatic, while traditional systems like banks are manual. Financial contracts in banks also need the services of an escrow company, whereas smart contracts have no intermediary entity.
Since the smart contract will happen on the backbone of blockchain, the cost of executing the transaction is also low compared to traditional banking. Banks today charge a lot of fees because they have to pay attorneys, accountants, analysts, etc. Blockchain technology does not need any of these.
In addition, traditional contracts require a wet signature or a paper document. Traditional contracts do not need this anymore as the contracts are digitally signed. It is your password or token that serves as your signature.
Overall, smart contracts are efficient because they are fast, and there are no other entities involved. No negotiations are necessary, and everything is already automated.
Is Smart Contract the Future?
It is, but it will take many years to convince the public of its safety. For one, smart contracts are not perfect systems. The mere fact that the signature is digital makes people apprehensive — they fear that hacking is going to make them lose their money.
Here are some more cons of employing smart contracts as a system:
- Decentralized – while decentralization is good, you must remind yourself that there is no central authority here. No one decides what is right or wrong, and nobody manages the exchange or execution of the contract. What does this mean? If you were conned, there is nothing you can do about it.
- Regulations – since smart contracts are decentralized, the government may have little power to intervene. Smart contracts, therefore, are great only for small and incremental transactions but not for large-scale business agreements.
Lastly, smart contracts execute computer algorithms. If only one computer code goes wrong, it will cause serious problems. In this case, the person who develops the code has a critical role to play.
The worst thing that can happen is that between two parties, if there is only one who knows how to code and codes the wrong thing, he will get an advantage while the other person will suffer losses.
A smart contract is the way of the future, and it can be used in many industries like healthcare, supply chain, voting, and financial services. It is only a matter of time before it finally catches up. The only downside is that these contracts are not centralized, which means that the government may have little power over them and may fail to intervene.As an Amazon Associate, Icy Canada earns from qualifying purchases.