What is the importance of Smart Contract?

What are Smart Contracts?

After the launch of bitcoin there have been many interesting projects that have come out. Many of them with the aim of contributing new ideas and decentralized solutions to the centralized processes or applications that we use the most today. These types of mechanisms are known by the name of Smart Contracts. Its use implies the elimination of intermediaries in order to simplify processes and, consequently, save costs for the consumer. It is, as its name suggests, a smart contract. It is also known as a “crypto contract” .

This is usually a computer program that directly controls the transfer of digital currencies or assets between two parties. Smart Contracts not only define the rules related to an agreement in the same way as a traditional contract, but can automatically fulfill those obligations . For example, determining whether an asset should go to a person or be returned to the originator.

What are Smart Contracts for?

Smart Contracts are complex and their possibilities go beyond the transfer of assets. From legal proceedings to insurance premiums, crowdfunding agreements and financial derivatives. Smart Contracts or intelligent contracts have the power to disintermediate the legal and financial fields. Specifically, by simplifying and automating the routine and repetitive processes for which companies currently pay hefty fees to lawyers and banks.

Smart Contracts: Advantages and Disadvantages

Blockchain -based smart contracts are helping make business and other transactions more secure, efficient, and profitable. Automating payment processes through Smart Contracts can, among other things, reduce overbilling and prevent fraud.

For example, the music industry could register ownership of its songs on the blockchain and then implement a smart contract to ensure payment is made when the music is used for commercial purposes. On the other hand, this mechanism could also benefit the automotive industry by storing available information on vehicle maintenance, accident and ownership history.

Advantages and disadvantages

Among the advantages and disadvantages of using Smart Contracts we find the following aspects:

Greater speed of processes : Smart Contracts are executed in automated processes. In most cases, as we discussed earlier, they can eliminate human involvement.

Reliability and accuracy : Once the relevant data is entered into the blockchain, it cannot be changed or deleted. If either of the two parties does not fulfill its obligations, the other will be protected by the conditions of the contract. Automated transactions also eliminate potential human error.

On the other hand, among the disadvantages, we find aspects such as the lack of international regulation of blockchain, cryptocurrencies and Smart Contracts. This makes the technologies difficult to track and monitor in the global economy. The latter is considered a security advantage, although it also has detracting aspects.

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