There are many applications to help things run smoother in a financial sector. The Smart Contract is one of them. It which allows performing credible transactions without associating with third parties. Today, we discuss the Pros and Cons of Smart Contracts.
Pros and Cons of smart contracts
Advantages of smart contracts
Since smart contracts run under Blockchain technology they provide security, economy and speed and standardization.
- Security: The smart contract is encrypted and distributed among nodes. Specifically, this guarantees that it will not be lost or changed without your permission.
- Economy and speed: The contracts have automated processes and most eliminated intermediaries.
- Standardization: There is a wide range of different types of smart contracts nowadays. You can choose one and change it according to your needs.
Disadvantages of smart contracts
Smart contracts aren't perfect!
- Human factor: People write the code, and can make mistakes. If the smart contract is in the Blockchain, it doesn't change. A good example of a human error is The DAO. Thus, developers’ mistakes in the code proved costly for the users and some hackers exploited errors and stole about $60 million.
- Uncertain legal status: Currently, no government is regulating smart contracts. As a result, there is a potential issue if governmental institutions decide to make a legislative framework for smart contracts.
- Implementation costs: Smart contracts cannot be performed without programming. It is essential to have an experienced coder on the staff to make fail-proof smart contracts and adopt the internal structure of the company for Blockchain technology.
Now, let's look at where we can apply smart contracts.
Smart Contracts Application
Smart contracts can apply to different fields such as:
- Elections: Voting results may put in the Blockchain and distributing among the nodes of the network. Moreover, all the data is anonymous and will eliminate any manipulation with the ballot.
- Logistics: However, the supply chain includes a lot of links. In addition, each link has to get a confirmation from the previous one, holds up its end of the contract and send the information further. Also, it takes a lot of time do the work in time. Also, smart contracts ensure transparency in the contract terms as well as fraud protection. There are some other possible applications, i.e. in management, bank system, insurance, estate, IoT, and others.
How do smart contracts work?
The main principle may compare to the work of vending machines. They follow only the instructions given to them. The coded assets and contract terms usually put into a Blockchain.
Between the nodes of the platform, the contract is distributed and copied multiple times. The contract is performed in accordance with the contract terms after the trigger happens. The program checks the implementation of the commitments automatically.
How Can Smart Contracts Be Enforced?
For creation, a smart contract needs:
- The subject of the contract: The program must have access to goods or services to lock and unlock them automatically.
- Digital signatures: All the participants sign the contract with their private keys.
- Contract terms: Terms of a smart contract take the form of an exact sequence of operations. All participants must sign the given terms.
Most Blockchains implement smart contracts nowadays to varying degrees. Different projects facilitating smart contract implementation. They vary with their possibilities, diversity of smart contracts templates, required programming skills. Nowadays such platforms improve, develop and evolve towards:
- Complete support of deals: The support team will help solve problems and questions.
- Being suitable for non-programmers: Most platforms need programming skills or services.
- Arbitration availability: Conflict resolution is a weak point for a lot of platforms. The involvement of the third party requires additional waste of time and resources.
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