Disadvantages of Fintech
These disadvantages have narrowed down public interest around its development, further inspiring the quest for a more efficient system. For instance, fintech is often associated with security issues, lack of privacy, and several restrictions on certain executions.
While blockchain technology consists of several useful spheres, the concept of smart contracts is considered very exciting, and a potential head start to a fully decentralized world. As cryptocurrencies and decentralized finance gain further relevance, smart contracts are readily adopted. The concept is gradually becoming indispensable to institutional entities like firms, corporate bodies, governments, and even fintech.
Judging from the potential that blockchain-based smart contracts exude, the question of it serving as an essential feature for fintech persists all the more. Before we delve into the offerings of blockchain-based smart contracts to the financial sphere, let’s explore what the concept means.
Understanding Smart Contracts
Unlike traditional contracts that are much slower and expensive, smart contracts are a digital form of predetermined contracts that executes automatically when the conditions are met. Smart contracts are digital tools to effect pre-programmed decisions based on the agreement of relevant parties without requiring an intermediary. Blockchain-based smart contracts are used to operate in a lot of industries and their use is consistently expanding. The concept is employed by large corporations, logistics, the automobile sector, and even in health care.
The importance of smart contracts cannot be overemphasized. These contracts can detect when the conditions around its development are fulfilled and perform the needed operations at the right time. They are useful in breaking down complex tasks that are regularly required by humans. Essentially, blockchain-based smart contracts are self-operating programs that operate based on explicit conditions enacted by their developers.
Smart contracts are powered by the blockchain. The Ethereum network is one of the giant pioneers of the concept. Ethereum offers one of the most elaborate platforms for the encryption and total development of smart contracts. The Ethereum network is open-source and boasts of a wide range of decentralized applications (Dapps) and smart contract developers. However, the network isn’t alone in smart contract development offerings. Other blockchains like Cardano and Qtum incorporate the existence of smart contracts.
Smart Contracts in Financial Technology
Smart contracts are powerful and since they can be integrated into any industry, their innate potentials are limitless. The most extensive feature of smart contracts is their accuracy. When pre-programmed conditions are fulfilled, the contract automatically executes. The response rate is accurate, based on schedule, and efficient. Another endearing feature is the transparency around its entire process. Unlike traditional contracts that are prone to manipulations from scheming parties, smart contracts are not so easily altered. The entire process of its operations is open to active participants to view. This encourages trust between individuals or institutions connected by the contract.
Other features abound, including the structure of security in smart contracts. While traditional contracts can easily be infiltrated by simple processes and errors, smart contracts are not so easily tempered with as it incorporates encrypted records on a distributed ledger. Equally, the use of smart contracts eliminates delays caused by the correction of errors and plenty of paperwork. Edits to smart contracts are agreed upon by the parties and implemented digitally to follow accurate precision in the future.
From the evaluation of smart contract features, it would be largely beneficial to financial technology. Fintechs would be able to carry out several programs quickly and effortlessly. They would be able to validate transactions efficiently and would go a long way to solve clearance and dispute issues. Since the operations are detailed on a distributed ledger, it’d be unlikely for transactions to be assessed by dubious persons and would improve the confidence of users in the platform.
Payment giant PayPal is believed to be working on the launch of an app that would test the use of smart contracts in the financial sphere. The advantage of smart contracts would be very noticed once integrated into financial technology. The ease of operations would be helpful to all users on diverse platforms.
With the buzz of blockchain technology and the need for more ease in financial transactions, the application of smart contracts would be a sort of answered prayer.
Financial services providers would be able to serve a larger user base without having to employ more staff or integrate more time-consuming setups. Smart contracts would introduce a revolutionary financial solution to efficiency, security, and simplicity in the financial sector.