What Are Blockchain Smart Contracts – A Deltec Bank knowledge series

September 05 19:24 2019
What Are Blockchain Smart Contracts - A Deltec Bank knowledge series

Deltec Bank
Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.

Cryptocontracts are smart contracts that control the transfer of digital assets between two users when specific conditions are met. This computer program defines the rules and penalties that occur, automatically enforcing the obligations of each party.

This outcome is possible because of the assignment of value to the inputs received by the outlined contract rules. Then the actions required by all contractual clauses occur to ensure the proper recipient receives the transaction.

Smart contracts are stored on the Blockchain using a decentralized ledger that is the underlying technology behind Bitcoin and all other cryptocurrencies.

The Function of Smart Contracts

Cryptocontracts execute a series of transactions that encompass a substantial range of fields. Users can have them manage insurance premiums, handle crowdfunding arrangements, or complete an anonymous online purchase.

This computer program acts as a third-party intermediary would for certain transactions without the sizable fees that typically occur. The contract would register the activities of all users and then automatically release funds or return them based on what it detects.

Automation is not the only advantage that smart contracts provide. This technology can control behavior, provide risk assessments in real-time, and providing auditing help. It is a combination of benefits that makes the regulatory compliance work of a business more straightforward than ever before.

Advantages of Using Smart Contracts

The autonomy of a cryptocontract is its primary advantage. The network performs the actions of the smart contract automatically. This process eliminates the risk of having a third-party involved in its deployment.

There are several additional benefits to consider with this technology as well.

The data entered in the Blockchain cannot be deleted or changed in any way. If one user does not complete the obligations outlined in the contract, then the other party receives the protections described by the conditions of the agreement. This process also reduces the risk of human error in its implementation.

There is a speed consideration to look at with smart contracts as well. The automation of this technology improves the speed of business transactions because it removes the human element.

Challenges to the Implementation of Smart Contracts

The benefits of smart contracts usually outweigh the potential negatives that exist, but it is still important to review the potential issues that this technology may create in specific situations.

A lack of international regulations is the most significant barrier to consider with a smart contract. Although there are laws that cover the legal implementation of user agreements, most of the rules that are in place right now do not focus on Blockchain or cryptocurrencies. That means there is a lack of regulatory oversight in this area.

Some smart contracts can be complex to implement, especially if there are complex terms that both parties must meet to achieve the desired outcome. They are impossible to change as well, which means all parties must develop a new contract to incorporate further details.

Smart contracts make it easier to take advantage of the benefits of Blockchain technology. Although it may not be useful in every situation, most industries are finding that using this approach can save them time and money.

Disclaimer:  The author of this text, Robin Trehan, has an Undergraduate degree in economics, Masters in international business and finance and MBA in electronic business. Trehan is Senior VP at Deltec International www.deltecbank.com. The views, thoughts, and opinions expressed in this text are solely the views of the author, and not necessarily reflecting the views of Deltec International Group, its subsidiaries and/or employees.

About Deltec Bank

Headquartered in The Bahamas, Deltec is an independent financial services group that delivers bespoke solutions to meet clients’ unique needs. The Deltec group of companies includes Deltec Bank & Trust Limited, Deltec Fund Services Limited, and Deltec Investment Advisers Limited, Deltec Securities Ltd. and Long Cay Captive Management.

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