Smart contracts save money by replacing costly middlemen. The less pieces that stand between transacting parties, the lower the transaction costs. Smart contracts are programmed to work without human intervention, and unlike traditional contracts, they do not involve any paperwork or third-party validation. They have begun to change the face of the banking and insurance industries, providing error-free processing of insurance claims and KYC processes.
Smart contracts allow for highly automated transactions and offer greater security than traditional paper-bound contract law, and they validate autonomously upon completion of the contract terms.
A Technology With A Lot Of Upside
One of the main benefits to the payments industry is the elimination of counterparty risk, specifically arising from disputes. With so much upside to using smart contracts, it’s no wonder mainstream payment processing companies have taken notice.
By 2026, the global market for blockchain-based fintech is projected to reach nearly $9 billion. The market will be driven by factors such as growing consumer demand, greater adoption of crypto, the rising need for cheaper cross-border payment systems, and increased security requirements. (For detailed information please visit https://www.statista.com/statistics/339845/.)
North America will likely exhibit a significant amount of growth over the next few years, due in large part to the smart contract space and the increased adoption of blockchain technologies. Given the Dallas Mavericks (Mark Cuban’s basketball team) recent adoption of Dogecoin for payments, and his bullish outlook on smart contracts, other thought leaders have begun to consider how smart contracts can improve their bottom line.
We are hearing news daily about countries such as El Salvador adopting Bitcoin; and just recently, in the United States, Arizona and Wyoming have proposed to accept tax payments via digital currencies.
Significant sectors in fintech which will benefit from adopting smart contracts and distributed ledger technologies (DLT) include: clearings and settlements, trade finance, cross-border payments, insurance and anti-money laundering. However, there are a few things that need to occur before financial companies can fully adopt smart contracts and enjoy the benefits of contract terms being “hardwired” on-chain.
Currently, most blockchain protocols have a number of technical limitations when it comes to processing smart contracts. However, with the upgrade of Ethereum from proof of work to proof of stake, the blockchain tech landscape (at least in ETH terms) will improve at a faster pace.