What are smart contracts?
Businesses use contracts to formalize new business relationships and the legal obligations each party has to the other. Contracts are an essential part of business in today’s society, but they are often cumbersome as they may require the need for a middleman and can be costly. This is where smart contracts come in – they get rid of the need for a middleman, they simplify and legitimize contracts between parties, and they can also be less expensive than traditional contract methods. They can even automate workflows, triggering a next step when conditions are met, which would save businesses more time as well.
What is a smart contract? According to IBM, smart contracts are “digital contracts stored on a blockchain that is automatically executed when predetermined terms and conditions are met.” For example, releasing funds to appropriate parties, sending a notification, or issuing a ticket.
What kinds of transitions can be managed through smart contracts? Virtually any type of financial transaction – loans, insurance, investments, and purchases. They can all be secured on blockchain systems.
According to GEP, an operational smart contract between two parties usually state the cost of manufacturing products, timeliness for product delivery from factory to consumer, penalty and bonus clauses, responsibilities of each party, and payment terms and conditions for settling invoices.
There are 3 key advantages to using smart contracts in business today – security, efficiency, and transparency.
Smart contracts are much safer than traditional contracts as they exist on a distributed ledger on the blockchain that cannot be altered. Blockchain transaction records are encrypted, which makes them extremely difficult to hack.
They are also extremely efficient and accurate – once a condition is met, the contract is executed immediately. There’s no time wasted on processing paperwork or scanning for errors that often result from manually writing contracts.
Lastly, they ensure transparency and trust as the contract is visible to all participants in the blockchain network at all times. This is because there’s no third party involved which results in no questions being asked as to whether the information has been altered for personal gain.
How they are used & how they can help businesses
What industries can use smart contracts? Industries like supply chain, manufacturing, retail, real estate, and art could benefit from smart contracts.
The supply chain industry will specifically see a lot of benefits to using smart contracts as they can quickly resolve disputes with vendors. Smart contracts use real-time communication that allows retailer and supplier relationships to grow stronger and result in more time for more essential work tasks.
At RTG Solutions Group, they often work with companies in the supply chain industry. Smart contracts could benefit these kinds of businesses as they could easily set up a contract for a particular order with specific parameters and transfer the payment into a holding account. The funds would then be released automatically from the holding account without any human intervention once specific criteria are met within the contract.
Opportunities for the future
As of right now, only two states in the US are enacting legislation in 2022 to legalize smart contracts – Arizona and Nevada. This means until the US recognizes smart contracts as legal, they will be practical for short, individual agreements. In fact, most smart contract transactions that exist today are with “niche companies that are already in the cryptocurrency and blockchain space,” according to Futurist Speaker. Any large, commercial deals will have to continue utilizing flexible traditional contracts.
Seeing that the way we do business in our society is getting more and more automated, it’s only a matter of time before smart contracts become the new normal way of doing business. If you’d like to learn more about smart contracts and other forms of emerging technology, visit our website: https://techcircletraining.com/
