Sergey Grybniak

@grybniak

Advantages and Disadvantages of Smart Contracts in Financial Blockchain Systems

Smart contracts represent special algorithms for the automation of contracts including deal making processes. Such a contract allows people to sell realties, exchange shares, money, documents or any proprietary. One of the important features of smart contract implementation is that you won’t need to use intermediary services such as brokers, notaries, agents etc to make a transaction.

The key properties of smart contracts are:

  • Autonomy
  • Decentralization
  • Auto-sufficiency

Autonomy implies that after a smart contact launches, the deal initiator does not have to participate any more in the process. Smart contracts are not focused on one central server but are distributed by various network points so they can be referred to as being decentralized. Auto-sufficiency supposes that contracts are able to collect money, realize transactions, distribute resources, issue and spend funds to allow a larger capacity of storage and computation power.

Blockchain is the ideal space for smart contract storing. As a decentralized system it does not require intermediaries to be present at the time of realizing transactions or signing deals. Smart contracts are stored in the distributed registry as a one time written code. They carry out their work thanks to a computer network which controls the blockchain. Thus, if a code is written in a proper way, nobody will be able to change it.

The use of smart contracts has just begun to be popular. Existing limitations of the development of such a type of deal signing due to some technical aspects can soon disappear thanks to such platforms as CREDITS. To write and transfer smart contracts in blockchain the system uses a powerful encryption system and has a language specific completeness as per Turing. Just to compare, a Bitcoin protocol with its much narrower functionality only permits monetary transactions and it does not offer the possibility to store smart contracts or transfer assets.

You can use smart contract in lots of every day life situations, but its greatest potential is in the financial sector. Smart contracts help solve the issue of mistrust between parties and business partners. For example, if company A sells shares or any other product to company B and the parties do not trust each other, they will choose an arbitrary who can help them in case of any difficult situations. If company A sends shares (through the code they are encrypted in) through blockchain storage it is only after company B pays money, that they will get the shares. It is possible for you to write in the code as a transaction condition that the shares will be transferred to the party after the money is deposited into the account. So, first, the algorithm checks the balance and then the deal will be signed.

Unfortunately, the smart contract potential in the financial sphere is not unlocked to full working capacity. The main limitations are transaction time and cost. Also, it should be mentioned that for various industries there are not enough specialized projects. One such project is Red Pulse, a Chinese start-up in financial consulting. This is a decentralized information platform for exchanging up-to-date info and knowledge about market trading with the RPX token bounty system.

What Is CREDITS?

A totally new product DLT blockchain CREDITS is about to enter the market. It utilises deals including smart contracts. CREDITS developers have remedied the shortcomings of their predecessors and at the same time saved blockchain registry advantages. They have achieved serious technical indicators. For example, transaction rates can be up to 1 million per second with the minimal commission standing around 0.0001%, so you can use smart contracts in the IoT.

With CREDITS it will be possible to create independent, decentralised and separate services inside blockchain and smart contracts due to new new advanced features.

CREDITS is a smart contract ready platform. It is a multi-level programs interface that enables programmers to create applications based on the adaptive CREDITS platform. The users get access to libraries and modules. You can manage these software components and create comfortable conditions for your specific tasks, whether it is business or IoT management. SDK as a ready-to-use Software Development Kit which allows developers to create their own applications powered by CREDITS in a simple way.

There are projects that have crowd finding or other money collection process as their aim. One of the leading products in this market is Waves. Waves specialty lies in that fact that they work on a 1PoS consensus basis which allows the transfer of tokens to different network nodes under tenancy in exchange for a part of the mining profit.

The next EOS project is a platform for decentralized application development. One of its founders, Dan Larimer, declares that EOS is planing to compete with Ethereum directly. The crowd sale has already collected 500 million dollars and projects to be the biggest one in history.

The main advantages of smart contracts

  • agent neutrality in signing deals;
  • automation in signing deals, time saving: excludes human participation in transactions, everything is done by the prescribed programm code;
  • safety: data in the decentralized registry cannot be lost and cyber attacked;
  • precision: no mistakes can be made due to the absence of hand-filled forms;

Note that smart contracts are in demand in various fields.

In gambling businesses, it is possible to provide information about the total entry and supposed score through the smart contract, and, which is important, the algorithm of this contract will be available for anyone to check. If the player wins, the money is automatically transferred to his/her account, if the player loses, the money is sent back to the bookmaker’s office account.

In logistics, blockchain-based smart contracts can shorten the chain of third party agents, speed up delivery, reduce the price for the consumer and excludes the possibility of theft due to the fact that all parties have access to the electronic system that controls all the processes. Applying smart contracts in elections excludes any manipulation of the third party because it is not possible to divert the source code.

Like any other technology, smart contracts have their own disadvantages:

  • The consumers are quite suspicious because it is a new technology and they do not understand it yet.
  • Making changes. For example, you may change your mind about renting an apartment, but the data is already registered and it is technically difficult to make corrections. This may bring mistakes into the system and make it less safe.
  • One can keep and save data in smart contracts safely and it is void of any distortions, only if the code is written perfectly and precisely. Humans can be tired or make clerical errors and thus the whole system is endangered.
  • The third party agents do not disappear but start playing a different role. The need for lawyers experienced in IT increases in the future because the programmers of smart contracts will need consultations for making new kinds of contracts.

Most of technical disadvantages of actual projects that were mentioned above do not exist in the CREDITS platform that also deals with smart contracts. In January of 2018 it will be launched at ICO. The new blockchain platform provides a possibility of information archiving that increase block capacity and transaction speed. For CREDITS it is from 0.1 up to 3 sec., meanwhile for other platforms it can be from 10 to 30 min. At that, transaction volume output for CREDITS can be up to 1 million transactions per second.

Obviously, from the technical point of view smart contracts have just begun and in the future they are going to change lots of things. Such project technologies accelerate the development of the financial sector. No doubt they will be of a great demand in the IoT.

More by Sergey Grybniak

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