Can the future of Fintech be found in blockchain-based smart contracts?

Blockchain is arguably the most significant innovation since the internet with individuals, companies, and even governments embracing the technology. An appealing feature of blockchain technology is smart contracts. Smart contracts are gaining widespread use and ease of creation as global processes are becoming increasingly digitized. They serve as an alternative to traditional contracts which are often slow and expensive.

Today, smart contracts are available to optimize many financial and business processes. In essence, they are self-executing, self-enforcing protocols that are governed by explicit terms and conditions.

Key features of smart contracts

Smart contracts represent a completely different way of approaching contracts. Instead of two parties signing duplicate copies of a paper agreement, smart contracts ensure compliance through blockchain technology. This reduces costs and simplifies the contract negotiation process.

A smart contract works through an executable code that runs on top of the blockchain to facilitate and enforce an agreement between untrusted parties without the involvement of a trusted third party. This code defines the mechanisms of the transaction and is the final arbiter of the terms. The readable terms of a contract are compiled into computer code that can run on a network.

A network of computers executes the actions once predetermined conditions have been met and verified. The blockchain is then updated when the transaction is completed. Once the transaction is included in a block, the smart contract is initiated and irrevocable.

Transactions between parties in current systems occur in a centralized form; however, this involves high transaction fees and security concerns. Smart contracts remove the need for intermediaries and contract enforcement.

Through smart contracts, tokenized securities can work as programmable equity — paying out dividends or performing stock buybacks through a couple lines of code. Finally, putting real-world assets on blockchain technology has the potential to usher in broader, global access to markets.

Overall, blockchain smart contracts certainly have the power to transform the way agreements are made across various industries, particularly within FinTech. However, it will take some time and require more development before it reaches its mainstream approach.

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