Smart contracts: the basics

Judy Rubio

Blockchain technology has proved that intermediaries irrelevant and obsolete. Avoiding them saves time and reduces costs. Special applications, as well as smart contracts are used to perform trustworthy calculations based on the digital ledger. They are widely used by government organizations and banks.

What are smart contracts?

The crypto-contract encodes the conditions of the transaction and the actions that automatically follow after their satisfaction. The agreement is self-supporting; its implementation does not require recourse to a third party (intermediary).

After you add smart contracts to the distributed ledger, you can decentralize the various functions of financial institutions. Crypto contracts will help to perform the following:

  • automating money transfers;
  • insurance service;
  • issuing securities;
  • decision-making on issuing loans by the bank;
  • making a will.

Smart contracts in the banking industry

Access to borrower's data, ownership documentation, and electronic land cadaster records will help automate the lending process. Smart contracts are enhanced to respond to negative time-consuming experience. Legal documents with more reliable KYC processes are used instead. Identity can be checked based on blockchain records. This may be subject to conditions that provide the ability to use additional services based on cryptographic agreements.

Processes and clearing require transactions and payments to be reconciled and verified, which entails high administrative costs. Thanks to blockchain, they will left behind

Avoiding mediation by financial institutions and banks

With the introduction of decentralized consensus protocols, banks will be able to get rid of costly and time-consuming mediation. The blockchain actually allows you to replace several functions of banks. For example, consensus protocols assist in the execution of processes related to payment systems, escrow deposits, and peer-to-peer lending. Blockchain will be able to perform other functions of financial institutions in the future.

The main difference between banks and cryptocurrency is the creation of finance out of the thin air. Digital money is designed to take control of the cash supply from various companies and give it to the best algorithms.

As you can see, smart contracts give a wide range of opportunities for business and regulation. Thanks to them, it is possible to fully automate various processes, including banking and government agencies. Crypto-contracts have a huge potential for development. Read our portal and you will not miss any important information about the use of smart contracts.