Comprehensive Blockchain technology is gradually breaking out into the mainstream as an enabler to tech and business disruption. Cryptocurrency is still the most popular application of Blockchain technology and its resilience in the face of discredits, attacks, and sabotage from traditional financial institutions suggests that crypto is here to stay. Now, the critics of Blockchain technology are gradually shifting away from disparaging cryptocurrencies to watering down another application of Blockchain – smart contracts.
Smart contracts are simply self-executing contracts written in computer code stored on a blockchain to automatically perform a given set of instructions once certain parameters are met by a predefined date. Any interaction that requires a contract bet
ween counterparties can be encoded on a smart contract to provide trust without the presence of a mediating agent by ensuring the immutability of terms.
Image Credit: Chainbits
The infographic above provides a comprehensive overview into the set up and operations of smart contracts across multiple verticals.
Many critics believe that smart contracts are more trouble than they are worth, probably because they are somewhat difficult to set up, understand, or implement- and they are probably not much use in analogue environments. This piece however provides insights into 2 practical applications of smart contracts in business.
Smart contracts in mortgages
The mortgage industry is one the first industries that will experience the most disruptive effects of smart contracts. A mortgage deal can take as much as 60 days (two months) from when the buyer accepts an offer letter to when the sale is deemed completed. Deploying smart contracts in mortgages will simply make the mortgage process faster, more secure, and cheaper for all stakeholders in a mortgage value chain.
For instance, buyers and sellers of real estate properties can have an agreement in principle and then transpose that agreement before processing the payments. The smart contract will have information on real estate titles, planning permissions, credit worthinessComprehensive , mortgage payments, property deeds, and the eventual transfer of ownership. In fact, Sweden in is already running a pilot for storing land registries on a Blockchain called the Lantmäteriet with the understanding that it could help Swedish taxpayers save as much as $106 million per annum while also eliminating tedious paperwork.
Researchers at Synechron observe that “[The] blockchain could save the mortgage industry over £0.5 billion per annum and reduce typical real-estate transaction times from 40 days to 30 [in the U.K.]. And, if the Land Registry put title documentation and asset ownership on a public blockchain we believe further savings of a similar size could be realized.”
Smart contracts in investments
Smart contracts will also have a huge influence on the global investment landscape by encouraging responsible investing, reducing paperwork, and minimizing instances of fraud. Take bond investing for instance; companies, municipalities, and governments all issue bonds to raise money. The bond is considered a fixed-income investment through which the investor lends money to the issuer with the understanding that the funds can be redeemed at a defined period with a fixed or variable interest.
Blockchain-powered bonds will typically have information on the original price of the bond, what it is worth at maturity, the accruable interests, and the due date of the interests. All this information can be encoded in a smart contract to reduce the paperwork and time requirements of setting up a bond investment. A smart contract can take into cognizance Comprehensive the net worth of the potential investor to force them to adopt responsible investment practice by not take overly risky investment decisions.
Startup funding as angel investors or VCs can also be guided by smart contract that ensure accountability, transparency, and while also serving a building block for a successful exit. For instance, investors are not often comfortable writing the full check for an investment in an early-stage startup due to fears that the founders could mismanage the money. The founders in turn want to see all the money in the bank because they don’t want their burn rate to the dependent on whether an investor will/will not release funds every month.
A smart contract can automate the disbursement of funds to the startup on the successful attainment of predefined milestones. Smart contracts can Comprehensive also guide equity rights in an investments and investors can exit their position by signing over their equity rights to another investor without necessarily forcing the startup to close shop because they want an exit from the investment.
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