Every day presents a fresh opportunity to uncover a new application for blockchain technology. After successfully forming the backbone for a revolutionary cryptocurrency, the blockchain is bringing forth strategic evolutions across industries including logistics, web security, and even trade finance. However, nowhere is this advance more evident than its growing function as an innovative payment solution. One of the key pillars driving this rapid adoption is the embrace of smart contracts.
Simply stated, smart contracts are a form of automated contracts that use pre-defined rules to facilitate the exchange of nearly any good or service. The overarching principle is to increase the transparency of the transaction while reducing fees and allaying the potential for conflict over nonperformance. However, unlike traditional contracts, these contracts have no room for interpretation because all terms are predetermined and automatically enforced by the contract itself. (See also: Understanding Smart Contracts.)
Watch Now: What Is a Smart Contract?
A simple analogy for understanding the purpose would be pizza delivery. In this example, a pizzeria promises 30-minute delivery for a pie or money back guaranteed. The pizzeria would then create a smart contract with a customer ordering a pie. The customer could put the funds in escrow, and if the pizza is delivered within 30 minutes, the funds are released from escrow to the pizzeria. If the pizzeria fails to deliver on time, the money held in escrow is returned to the customer. While overgeneralized, this example readily illustrates how smart contracts can be applied across nearly any activity that requires some sort of contract to establish trust and security between parties.
Bridging the Ingenuity of Blockchain With Modern Contracts
Smart contracts are simply that – smart. They are very carefully designed to carry out specially designed functions and tasks without the intervention of either of the parties which could result in the breach of said contract. In the event of a breach, the contract is optimized to ensure that the other party is not damaged by the violation.
The principle of keeping funds in escrow, for instance, is completely solved by smart contracts without the need for an especially complicated legal framework that requires fees or a broker. Each side is protected by the agreement. If the seller fails to deliver on all the terms of the contract, the other party keeps their funds or other deliverable. The reverse is also true if the buyer fails to post the funds in escrow.
As cryptocurrency gains greater application and adoption, smart contracts effectively enable trade with significantly fewer barriers. Companies are already racing to the space to build straightforward contractual solutions for businesses of all shapes and sizes.
One example of this focus on smart contracts is Jincor, thanks to its simplification of the system for parties that are not comfortable with blockchain technology or cryptocurrency applications. The system can handle transfers tied to trade agreements or even implement employment contracts. Its integrated wallet solution accompanied by contract templates and an arbitration platform helps Jincor broaden the appeal for companies seeking ways to integrate blockchain with daily business activities.
"The volume of commodity-money transactions is much larger in the business sector than in the consumer one," explained Anton Lysakov from Jincor. "The evolution of Jincor ecosystem will encourage companies to use cryptocurrencies for corporate needs and, therefore, transfer digital assets turnover into mainstream trend."
The Automation Effect
Ultimately, the embrace of smart contracts may very well owe its success to two of its key pillars: automation and the cost savings it brings. Foremost, transferring funds within a digital environment is much faster than traditional bank transfers, which can be time-consuming and costly. If digital wallets on either side of a transaction can be verified, it creates an atmosphere of trust that enables both parties to collaborate without fear of loss or the need to build confidence. (See also: How to Invest in Bitcoin Futures.)
Apart from saving legal expenses by building a template, enforcement becomes a much less costly endeavor, and transaction times can be shortened significantly. The amount of time it takes from contract inception to completion is also reduced, saving money and reducing associated back-office expenditures. Once a transfer is recorded by the receiving party, funds or other assets can be immediately disbursed to the other party. With the smart contract in place, all these activities are automatically executed as a function of its design, reducing the likelihood of fraud and contract failure.
Facilitating Trust Without Worrying About Enforceability
When large contracts depend on both sides fulfilling numerous conditions, any number of things could go wrong. This means companies face a degree of risk when transacting with suppliers or clients. To move forward without the risk of a drawn-out legal process should either side fail to honor their obligations, two entities can enter into a smart contract that establishes a set of milestones for payment to be released for any services rendered or received. Apart from being a magnificent risk-management tool, smart contracts can effectively remove trust from the transactability equation.
Thanks to the numerous functional benefits of smart contracts, they stand out as one of the best innovations to accompany blockchain development. Apart from helping formerly uninterested parties adopt the blockchain for payments and agreements, the protections offered by smart contracts present a win-win scenario for all participants involved.
With automation efforts accelerating across the globe, blockchain and digital ledgers will play a pivotal role across industries. To this end, smart contracts are a helpful innovation accompanying many blockchain activities, helping end-users benefit by lowering fees, hastening transaction speeds, ensuring performance, and increasing protections for associated parties entering into an agreement.