How Smart Contracts Are Changing Financial Services
Want to know what the next revolution will be in the financial industry? Meet smart contracts, the brainchild of the blockchain industry. Smart contracts have the potential to change the business world by automating the contract creation process, removing the need for a third-party intermediary and eliminating the tension that can come from the potential for human error. This is incredibly important in the financial field, which is still working on regaining consumer trust.
If smart contracts are, as Nick Szabo said, “a computerized transaction protocol that executes the terms of a contract,” you can see why smart contracts are perfect for the FinTech startup industry. First, it makes little sense for an industry devoted to new technology to be using a system that is dangerously outdated; second, it allows startups to focus more on their growing business and less on fulfilling the fine-print in their contracts. If you tend to forget deadlines for renewals, smart contracts may just save your business. As well, if you are dealing with over-the-counter agreements, smart contracts are set up to make the process more secure for everyone involved.
Another positive aspect is the speed in which these contracts can be processed. In situations like auto insurance, smart contracts can dramatically reduce the timeframe of the claim process, getting the opposing parties settled quickly and with much less stress involved. For startups working on an international scale, the faster speed and automation process means the transaction is more secure and efficient. In the future the process will be even more efficient, as Common Accord sees the importance of a global contracts system and is in the process of creating a global code.
There are, of course, dangers in entrusting a coded contract. If the coding is flawed, the terms will not be properly executed. This means that startups using smart contracts need to keep an eye on the process and be ready to take quick action if certain stipulations do not end up getting met. As well, faulty coding can lead to cybersecurity issues. In May 2016, the DAO set records for its crowdfunding efforts and was set to start funding proposals. Unfortunately, a hacker exploited an error in the code and drained the system. You need to ensure your contract coding is failsafe to prevent major issues.
2017 is looking to be the year of the smart contracts. As FinTech companies are already deep in the technology field, this shift won’t be jarring. In fact, smart contracts will prove to be a much better fit.