Four steps for financial institutions to get started with smart contracts

Entrepreneur, technology evangelist, business strategist. CEO & Co-Founder of Visartech Inc.Software Product Development Agency.

Today, brands seem more willing than ever to look for smart solutions to streamline processes and improve customer satisfaction. The same is true for financial institutions, which are looking for new approaches to augment and improve a wide variety of business processes.

Smart contracts seem to be one of them. Smart contracts are executed automatically and less error-prone, eliminating the need for mediators. Importantly, since smart contracts are part of a blockchain, they also provide security benefits. While technology leaders tend to overlook smart contracts, there are several use cases to explore.

1. Eliminating the Human Factor: This improves a company’s performance by avoiding the negative consequences of human error. For example, Barclays uses smart contracts to automate payments and change the transaction owner. Meanwhile, HSBC has started using smart contracts instead of letters of credit.

2. Gain Market Advantage: While the technology is not yet widespread, more companies could follow suit Amazon, IBM and JPMorgan, who are there already? using it. As smart contract adoption grows, more people may be willing to work with innovative and forward-thinking companies. Financial institutions that adopt smart contracts early may gain more leverage and market share.

3. Embracing the Blockchain: The contracts are programs stored on decentralized blockchain technology, which provides a high level of security, transparency and speed. In addition, decentralization helps to keep data in different places, which limits the possibility of fraud and forgery.

What are the main benefits of smart contracts?

Perhaps the greatest benefit of smart contracts is their automatic execution, which means fewer people are needed to implement them. Unlike traditional contracts, digital contracts also have some other great benefits, such as:

1. Transparency. Because encrypted transaction data is only known to two entities, no one should be able to change information for personal benefit.

2. Irreversibility. A smart contract is aimed at creating stable conditions. Parties can therefore no longer make changes once it has been published on a blockchain that guarantees contract execution.

3. Security. The data is encrypted, reducing the chance of hacks.

4. Speed. Digital contracts require no paperwork or time to correct errors, and the contract is executed immediately when the conditions are met.

The potential that digital contracts currently offer is enormous. For the proof, look at the projected growth of the market: The market size is expected to reach $770.52 million worldwide by 2028.

Four main steps for efficient smart contract development

However, with advanced solutions, it is crucial to explore every stage of the implementation process. To get an idea of ​​how the process works, here are the four common stages of development.

Establish business terms: Smart contracts run on an “if/when” basis, meaning there is no way to change them. Parties involved in a digital contract must define precise and immutable terms before agreeing to the contract.

Define the architecture: Once the business requirements are determined, it’s time to create all the smart contract logic. At this stage, it is crucial to work with an experienced technical partner who knows the nuances of developing solutions on blockchain.

Smart contract development: This stage involves the encryption for one of the blockchain platforms, such as Ethereum, IBM, Hyperledger Fabric or R3 Corda.

Internal assessment. An internal audit may be necessary to find out whether the digital contract is working properly. Testing is first performed via a local blockchain. A testnet is then performed, during which an audit ensures that the digital contract functions as expected and meets all security requirements.

Conclusion

Smart contracts are a new way for financial institutions to contract and communicate with their customers. While some companies are hesitant to adopt this solution, others have already started using digital contracts to improve their business processes.

With the benefits of security and automatic execution, as well as the opportunity to be part of emerging blockchain technology, these contracts should appeal to companies looking to simplify the verification and traceability of various transactions.


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