The contractual conditions registered in a smart contract enable the system to take the necessary measures in the event of a breach in the same way that guarantees the consideration for the fulfillment thereof.
A Smart Contract is a computer program that operates within a decentralized system, not controlled by any of the parties, which facilitates, ensures, enforces and executes agreements registered between two or more parties, persons or organizations, through an automatic contract.
The Smart Contract protocol facilitates the verification and compliance of a contract automatically, which undoubtedly brings agility to the business sector. Because they work on blockchain, they do not need the intervention of people or third parties to verify and execute compliance.
The code of contract content is stored in the blockchain, a virtual book that records all transactions made in a network. The code should be based on logical rules and conditions, which can interact with autonomous devices such as IOT sensors. The result is an armored virtual agreement with all eventualities covered, so that if all the parties contribute what was agreed, there will be no possibility of fraud.
Applications of Smart Contracts
Smart contracts can be applied in the realization of any transaction that requires a registered agreement between parties, as an example in the contracting of financial or insurance products, the deposits in guarantee, the operations of purchase and sale of financial instruments in the stock markets, of syndicated loans, royalties and more.
The primary objective of the Smart Contracts is to provide superior security to the traditional contract law and reduce transaction costs associated with contracting. The transfer of digital value through a system that does not require trust opens the door to new applications that can make use of smart contracts, such as cryptocurrencies.
The great expectation generated by smart contracts is due to the possibility offered by Blockchain to people who enforce contracts in the real world by themselves without the need for a physical intermediary, that is, without the need for a judge or third party.
Currently faced with the breach of contract by any of the related parties, the mechanism for compensation for damages is to go to an intermediary, provided and supported by the public power. This intermediary receives the coercive power of the State to enforce the principle of safeguarding our rights. Therefore, without the figure of the intermediary, neither of the parties can access full compliance with their rights.
This need for a third party to settle disputes for non-compliance with what was agreed in any type of contract slows down the results in favor of the injured parties, and it is to solve this difficulty that many apply the technology of smart contracts in their hiring processes. The contractual conditions registered in a smart contract enable the system to take the necessary measures in the event of a breach in the same way that guarantees the consideration for the fulfillment thereof.
The biggest beneficiaries with the implementation of smart contracts will clearly be the operators of the insurance industries, as they could provide additional security in terms of scam prevention. Likewise, in financial loan contracts, a smart contract allows security options to be assumed as default actions are presented. In contracts for the sale of goods, the buyer makes the payment to the contract account and the smart contract supervises through the messaging programs that the merchandise has been transferred to the buyer. Finally, the smart contract is executed by paying the funds from the deposit account to the seller.
They can also be useful when limiting public or private spending to specific cases, such as in a geographical area, on a specific date, etc. We would have programmable money useful in private companies, public institutions and non-governmental organizations when limiting the problem of corruption.
Blockchain improves the guarantee of agreements
Although Blockchain technology is still at an early stage of development, without a doubt the potential it offers us will allow us to introduce changes in the way of “exchanging value” through digital channels.
Thus, in the same way that the internet brought us the exchange of information in an agile and simple way, technology will introduce a new way of exchanging value between businesses, institutions and individuals. In addition to the automation of the processes, it provides an improved concept of justice and transparency. Undoubtedly, smart contracts will increase the speed of execution of transactions, which will eventually translate into the possibility of closing a greater volume of agreements with less risk of compliance.