Using a smart contract will always make sense when there is a defined workflow that needs to be managed according to certain rules or to ensure the fulfillment of certain previously agreed conditions.
There is a term that always crops up when it comes to analyzing the disruptive trends of the day: blockchain. But, are these blockchains really destined to change the world? Despite the fact that many people continue to exclusively associate this technology with bitcoin-based transactions, it has transcended the cryptocurrency arena; its use has penetrated the most diverse domains of our present reality, from the automotive sector to the protection of authors’ rights and donations made to NGOs, and extending to optimizing international trade transactions.
Even so, those examples represent only a small sample of what's to come. As pointed out by Carlos Kuchkovsky, CTO for New Digital Business at BBVA , in less than five years challenges will be overcome by cross-industry consortia like Alastria, a nonprofit association that aspires to provide Spain with a common blockchain infrastructure and a digital identity standard so that transactions can be conducted using this technology to provide foolproof safeguards. These transactions, which will be closed within a distributed network and decentralized like all those created from blockchains, will be supported by “smart contracts”– another essential concept in any compilation of digital trends.
To understand the importance of intelligent contracts, it's necessary to remember that blockchain has unleashed what is known as the “Internet of value.” Just as the Internet of information revolutionized many companies, the new reality of sharing value over decentralized networks will also see changes across various industries when the interested parties agree on what data is genuine. That's why they say that blockchain is a consensus driver. And to demonstrate that it holds true, blockchain-powered transactions use smart contracts—applications that are self-executing when the conditions programmed in their code are met.
"In a blockchain, the user can establish who can use his or her data, for what, and in exchange for what, which increases confidence in transactions."
In the absence of a single intermediary that centralizes and validates the transactions made in a blockchain—whether it be public, private, or a mix of both—the participants in these decentralized networks should jointly act as a collective registrar of whatever actions are taken on the platform. In practice, nobody needs to expressly give consent, rather it should all work automatically with the system itself being tasked with validating each transaction via a smart contract.
A defined workflow
According to Kuchkovsky, using a smart contract will “always make sense when there is a defined workflow that needs to be managed according to certain rules or to ensure the fulfillment of certain previously agreed conditions.” In the banking and financial sector, this translates into three types of transactions.
Firstly, those that have to do with the internal processes of the banks themselves, between their different control areas or departments. Secondly, the relationships of the bank with other banks or with regulatory bodies and supervisors; and the transactions made on behalf of the customer, whether a private individual or a corporate entity. And finally, smart contracts can be used to protect interbank processes such as sending remittances or international payments. There are three main reasons for this:
- Comprehensive transaction traceability, since the location of money sent can be verified at any time during the process. Each transaction activity is registered in the blockchain, and no one can modify this data.
- Defining conditions that will be executed automatically guarantees that a payment will only be made if the interested parties fulfill the terms of the agreement. For example, if it has been agreed that the client will pay the supplier 20 percent of the transaction when the goods leave the port, this will happen when the GPS attached to the order sends the blockchain its coordinates, thereby streamlining many processes that until now were subject to various validation points.
- Total control of private and confidential information. In a blockchain, the user can establish who can use his or her data, for what, and in exchange for what, which increases confidence in transactions.
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