Technology is causing business transactions to change their very nature. Automation is making them quicker, more accurate, more secure and with fewer errors. With the help of the Internet of Things and Artificial Intelligence, human travel and paper trails are quickly becoming inconveniences of the past. Enter the smart contract.
Smart contracts are agreements between people executed through computer code. The business exchange, be it keys for rent, candy for vending machine change or money for groceries, can be done entirely electronically. There is no stroke of a pen, swiping of a credit card, signing of a check or shaking of hands. Since its discovery in the early 1990s, smart contract technology is helping more secure and efficient business practices launch into the future.
Smart contracts are possible through blockchain technology, a digital ledger that keeps records of financial transactions, notably those involving such cryptocurrencies as bitcoin, on a peer-to-peer network. Blockchain, also known as distributed ledger technology (DLT), stores transactions on a public database, making them more secure.
These so-called “smart” contracts bring many benefits. The electronic nature of each transaction standardizes the rules, significantly reducing the costs of reaching, formalizing and enforcing an agreement. When it comes to any agreement between two parties, DLT can track a transaction’s performance in real-time. The peer-to-peer network keeps track of each transaction so that no third party can interfere and/or manipulate it, ultimately making transactions much more secure and the people making them less vulnerable to identity theft and other forms of fraud.
The automobile industry will see the benefits of smart contracts through self-driving cars and a reduction in car thefts. Automated keys store the owner’s identity on the blockchain. Banking can be improved by automating several transaction processes and making them more secure.
When voting through smart contracts, security is no longer as much of a concern due to the reliability of blockchain technology. Voting processes and turnout can also benefit. Simplifying voting execution and making it done remotely can increase voter participation significantly.
Healthcare is also expected to benefit from smart contracts. Processes like authenticating patient data and executing insurance trials will be simpler and cheaper. Schools, law firms, supply chain companies and real estate agencies should also reap the rewards of smart contracts, and other businesses figure to benefit, as well. In fact, many argue that smart contracts will prove valuable to nearly every business on the planet that handles transactions.
Though smart contracts bring the promise of many improvements to modern business practices, they may not be as smart as they seem. They are only as intelligent as the people doing the coding and the information available to them at the time. It is also still a new technology, making it vulnerable to pitfalls and bugs. Possibilities for mistakes make smart contracts much more accessible to hackers.
As mentioned, today’s smart contracts primarily center around cryptocurrencies. There is much to do before smart contracts are a regular part of daily life. Questions linger on governmental regulation, taxation, and backup plans for when transactions go wrong. However, as technologists work to solve the pitfalls of smart contracts, they become more and more woven into the fabric of our business culture.
