Contracts are an essential part of doing business. They help ensure that the people involved in a deal treat each other fairly, understand exactly what they are signing up for, and are punished if they do not do what they say. Clearly, they are important, but the trouble is that they are traditionally very slow. Lawyers and other middlemen have to get involved in order to draft them, and everything is enforced manually. Disputes and delays are inevitable within this system.
However, this could all be changing now because of smart contracts. These are digital agreements, written in code and designed using blockchain technology. One of the main ways they differ from traditional contracts is that they are automatically enforced, reducing the delays and disputes described above. In fact, they have a number of other benefits over traditional business contracts, which is why they are expected to revolutionize the business agreements of the future. Here is everything you need to know about smart contracts.
Self-Execution
With a traditional business contract, whether a payment is made or a deadline met depends entirely on people doing what they have agreed. This can lead to all kinds of problems. Maybe they try to wriggle out of paying by feigning dissatisfaction with the work, or they forget and make the payment late, or they lose the payee’s account details – you get the point. The idea of smart contracts is that they cannot suffer from these issues. The contract itself is a set of digital instructions that are automatically executed when the conditions stipulated in the contract are met.
If the contract says that the payment for a piece of work should be released when that work has been received and approved, then the money will automatically be transferred the moment the approving party clicks to approve it. They do not have to approve it and then go and speak to the finance department, who then speak to the bank or payment processor, to transfer the payment.
Reducing Middlemen
As the example above illustrates, smart contracts eliminate several layers of middlemen. This is likely to significantly reduce costs for businesses, as well as increasing efficiency.
However, some middlemen are still required. Because they comprise many lines of computer code which most people are unable to read, third parties are typically brought in to perform a solidity smart contract audit. This essentially means painstakingly reviewing the code line by line to ensure that all of the instructions are correct and will execute in the way that both of the contract parties expect.
Greater Security and Trust
The reason it is so important to make sure that every line of the contract is exactly as it should be is because once a contract is recorded on the blockchain, it cannot be altered. Those instructions will be carried out whenever the conditions are met. This means that neither party can be defrauded and they can trust that the other side will uphold their end, but it also means that they need to be sure the contract functions as expected.
Conclusion
The future is likely to see the impact of blockchain technology on everything from sports and entertainment to business and law. Smart contracts are only one way that business will be impacted, but that impact looks likely to be a big one. Once the world has been introduced to smart contracts, there may be no going back. Because businesses will benefit by saving on administrative costs and all the middlemen being eliminated, and because they make unreliable clients and late payments impossible, it seems likely that smart contracts will be widely adopted.
