OK, so should help us save money, but what are they and how do they work? A smart contract is code that is backed and enforced by blockchain technology that automatically exercises when certain requirements or stipulations are met. So for example, when buying a car, a smart contract would alleviate some of the fees associated with the legalities of buying a car. This is done because there is a set of blockchain-backed code that has been programmed to transfer ownership of the car over to the buyer as soon as the payment has been received.
If smart contracts are just glorified ‘if-then’ statements, why haven’t they been implemented in our lives yet? Well, the power of smart contracts lie in blockchain. Since the recent uptick in blockchain usage, we are seeing smart contracts as a percentage of the many uses of blockchain rise. The ability to create a ‘contract’ with the technology of blockchain makes the issues of trust and transparency non-existent; there is no need for legal repercussions, incentives, or complex initiatives to ensure the buyer and seller both receive their property and payment respectively.
The go beyond real estate and property ownership. Any area or sector that requires contracts and official agreements can benefit from the use of smart contracts. A specific sector that is set to benefit from the use of smart contracts is the finance and business industry. The amount of money that can be saved by smart contracts in terms of time, manpower, and virtual presence has led Santander Innoventures to believe that “ blockchain technologies could reduce banks’ infrastructural costs by $15-20bn a year by 2022 ”.
Another industry that stands to benefit from the implementation of smart contracts is the insurance sector. Insurance companies spend millions of dollars processing claims and while just smart contracts won’t create a viable system that cuts costs, minimizing and streamlining the entire process can allow smart contracts to prevail and succeed. Determining car insurance rates and processing claims are very reliant on factors such as the number of accidents, age of the driver, etc. With multiple smart contacts for each policyholder, there could be a system that sees an accident automatically enforce a higher rate as well as a shift in your policy.
All the uses above have shown the positive side of smart contracts, but there are also some cons to the implementation of smart contracts and barriers to entry that make implementing smart contracts extremely difficult. The major issue with smart contracts is the same as every emerging technology; its youth. Most industries are not willing to place enough faith and in turn, resources into a developing technology with only a few cases of proof-of-concept.
Another factor that makes smart contracts a volatile option is its accordance with regulation and the government. Like other revolutionary advances in most fields, the government needs to have some sort of understanding of the product as well as control over how it impacts consumers. Being able to regulate emerging technologies make for a difficult job for the government and that will only delay the advances being taken in the blockchain space. However, even with these barriers, smart contracts are extremely useful technology and should be put into practice as soon as possible.