What are smart contracts for?
Imagine that you need to sell a house. It’s a rather complicated and daunting process which entails a lot of paperwork, communication with different firms and people as well as a high levels of various risks. That’s why the absolute majority of house sellers decide to find an estate agent, who deals with all the paperwork, markets the property and acts as an intermediary when the negotiations begin, overseeing the deal until it’s closed.
Moreover, the agency provides an escrow service, which is especially useful in such transactions, as the sums involved are normally quite big and you can’t really fully trust the person you will be dealing with. Nevertheless, after the successful deal, the seller’s and the buyer’s agents will share around seven percent of the sale price as their commission. This amounts to quite a substantial financial loss for the seller.
It’s situations like this where smart contracts could really come in handy and effectively revolutionize an entire industry, all the while making the process a lot less of a burden. Perhaps most importantly, they would solve a trust issue. Smart contracts work on an ‘If-Then’ principle, which means that the ownership of the house will be passed on to the buyer only when the agreed upon amount of money is sent to the system.
They also work as escrow services, meaning that both the money and the ownership right will be stored in the system and distributed to the participating parties at exactly the same time. Moreover, the transaction is witnessed and verified by hundreds of people, so the faultless delivery is guaranteed. As trust between the parties is no longer an issue, there is no need for an intermediary. All the functions that an estate agent does can be pre-programmed into a smart contract, while simultaneously saving both the seller and the buyer considerable amounts of money.
And this is just one example of potential uses of smart contracts. They are capable of facilitating an exchange of money, property and anything else of value, ensuring the complete transparency, avoiding the services and accompanying charges of a middleman and eradicating the question of trust between the parties. The code of a particular smart contract includes all the terms and conditions agreed upon by the parties, and the information about the transaction itself is recorded in a Blockchain, a decentralized, distributed public ledger.
Read moreWhat Are Smart Contracts? Guide For Beginners