Smart contracts are digital contracts between multiple parties who want to come to a deal or contract. Smart contracts, though they are in their infancy, it is estimated that they can disrupt the way we sign agreements and deals within a span of 3 years. So, let’s gear up and get an insight about what are the benefits of smart contracts and why it can distract the way we sign deals!
Why Choose Smart Contracts Over Traditional Contracts?
- Time Consuming: In traditional contract agreement, the parties who are signing the contract or deal meet in person to negotiate the conditions and sign the contract. Both parties spend a lot of time making several revisions in the contract. Moreover, even after signing the deal, a big amount of time is spent in the verification process, the third party organization or the middlemen takes much time to authenticate the contract before approval.
- Requires A Middleman For Authority: Traditional contract signing happens in the presence of a third party.
- Expensive: A standard contract is much more expensive than a smart contract since there are allegedly “hidden expenses” when taking into account future contract complications, such as arbitration, in addition to the third party’s need to make a profit. A traditional method of signing a deal or contract is so expensive.
Smart Contract Lifecycle:
- Create: A smart contract records the terms of a contract on a distributed ledger shared between all participants and validated by validators. Negotiation of multiple parties. Smart contract’s design, implementation, and validation.
- Freeze: Smart Contracts are stored on the blockchain. Freezing of digital assets of involved parties happens in this stage.
- Evaluate and Execute: The contract waits for external triggers to evaluate pre-defined Conditions. The contract self-executes upon fulfilment of conditions via triggers.
- Finalize: After a smart contract has been executed, the new states of all involved parties are updated after a consensus mechanism.
Benefits Of Smart Contracts
- Independence: Since the smart contract executes automatically after the predetermined conditions are met, there is no need for third parties. The participants make the arrangements on their own, eliminating the need for middlemen.
- Reliability: Since the smart contract is present on the blockchain, it is immutable! Meaning, once entered it cannot be altered or tampered. So, the smart contract is reliable since the contract can hardly be changed or forged because it is securely kept in a dispersed network.
- Security: Every node in the blockchain platform has a copy of all the transactions that ever occurred, so the blockchain is transparent. Since the network is distributed, the contract is duplicated in every node and cannot be lost increasing the security.
- Savings: By eliminating middlemen and commissions, costs are brought down for all the involved parties.
- Accuracy: With this form of contract, there is almost no chance that the terms or processes will be done incorrectly.
- Sustainability: By using contracts, offices, notaries, and registers can stop using paper, and fewer commutes mean less pollution.
- Speed: Since the smart contracts are digital and automated, the time taken for reconciling the errors and mistakes during filing is eliminated. The contract execution is completed in minutes.
Where Do Smart Contracts Work Best?
These contracts are better suited to some businesses than others due to their self-executing nature.
- Banking, insurance, healthcare and real estate can adopt this technology extensively as these sectors involve guidelines, deals, requirements and are subject to risks.
- Automated contracts are less suited to the hospitality, food, and beverage businesses, because service levels are qualitative in nature.
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