We started this blog series two weeks back with a cursory glance at blockchain – a new technology that might alter the way companies around the world conduct their business. This week we’ll focus on the second part of our blog title – ‘Smart Contracts’ to learn what they are and why they are being considered the future of contracting.
Paper-based contracts and their creation and management present some inherent challenges to legal teams and other business functions handling contracts. These include issues such as –
- Long creation and implementation cycle – Traditional contracts take longer to assemble and implement as they need to be transferred physically. This is an impediment in a world that values time more than ever.
- Low accuracy – The human element in traditional contracts make them susceptible to errors and the only thing worse than a late contract is an inaccurate one.
- Lack of security – As business transactions increasingly become digital, companies are discovering new and unique security and privacy loopholes in their systems every day. Traditional contracts are not geared up to tackle these modern challenges.
What are smart contracts?
Smart contracts are not technically ‘contracts’. They are, in fact, software that enables the automatic implementation of clauses and terms of multi-party agreements. A blockchain-based smart contract use consensus protocols to execute a pre-determined sequence of steps that are contingent upon the actions of various parties of a contract. In such a scenario all parties can validate the outcome of contract clauses instantaneously without involving an intermediary.
With this, we are sure to have to whet your appetite for smart contracts. Come back next week to read our next post wherein we’ll discuss the benefits of smart contracts over traditional ones and share some real-life examples of smart contracts already in action all over the world. As always, we’d love to hear back from you so please share your feedback and comments in the comments section below.