Smart Contracts - Blog Posts

What are the Pros & Cons of Using Smart Contracts?

We live in a programmable economy that has witnessed many radical changes brought by digital technologies such as Analytics, IoT, Automation, Blockchain, AI (Artificial Intelligence), etc. All these technologies have drastically changed the way we do business in the old days with customers, vendors, partners, etc. Moreover, these technologies impact how business contracts are executed, formulated and enforced. 

Smart Contacts are one of the greatest gifts of these modern technologies. Real estate, Government, Supply chain, Management, Finance, and Healthcare are just some industries that have begun to embrace Smart Contracts. Smart Contracts are self-executing arrangements or agreements between two parties, such as individuals or businesses, powered by Blockchain and have an enormous potential to help organizations scale and grow.

The idea of Smart Contracts was first introduced by Nick Szabo back in the 1990s, but it was not really realized until Ethereum spearheaded it in 2014. And now, it's growing rapidly with every passing day, so knowing about these contracts is essential if you are planning to go with Smart Contracts. So let's have a quick look over some crucial pros and cons of these contracts. 

Rise of Smart Contracts

As said earlier, the term Smart Contracts was first coined by Nick Szabo. The digital revolution has made it possible to formalize Smart Contracts smartly, far more functional than their paper-based predecessors. Enforcement and verification of contract laws through cryptographic protocols existed before the arrival of Blockchain technology. Talking about the present Blockchain-based Smart Contracts, implementation underlines the computation that takes place on a distributed ledger or Blockchain network, such as Bitcoin or Ethereum.

A Quick Overview of Smart Contracts

Smart Contracts are the digital form of an agreement stored in Blockchain. There are basically self-executing contracts that function autonomously in a conflict-free, transparent and secured environment by eliminating the intermediates' needs. Smart contracts help you store and execute business agreements, legal documents, wills, health records, property deeds, shares, or anything of value. 

Pros & Cons of Smart Contracts

Pros of Smart Contracts

1. Security

Important agreements carried out through Smart contracts are considered secure. All thanks to factors like the immutability of the Blockchain for supporting them. Additionally, Smart contracts are transparent and easily traceable, which adds layers of safety to the agreements. The best thing is that they eliminate the work of intermediates as all work is done by a digital process which is safe and secure. 

2. Cost Saving

Not only secure, but Smart contracts are cost-saving because there is no need for intermediaries in Smart contracts, which also eliminates the additional cost associated with meetings with notaries, and clarifications-whom you don't have to pay to witness the signing, legal fees and more. When all this work vanishes, you will almost certainly save money.

By leveraging smart contracts, as opposed to traditional contracts, you'll have very few expenses. As once the document is signed and submitted, the fees end there. 

3. Speed & Efficiency

Smart contracts are all about automation. Gone are the days when you have to do paperwork and get everything in order. Smart work has made everything easy for you; now, you don't have to spend a huge amount of time completing paperwork; you can simply execute the agreement instantly, saving plenty of time and effort. Interestingly, no intermediary is necessary, which means the parties involved in the deal don't have to wait for a central figure to oversee, approve or sign off on the agreement. Once it is clear that everything is in the right order, the terms of the contract will automatically be rendered. 

4. Autonomy

Another main advantage of a Smart contract is autonomy. We have already discussed that there is no intermediary required to carry out a transaction or agreement in a Smart contract- no lawyer, broker, notary, or another middleman to speak. And this means that both parties have a great degree of autonomy. Because these contracts are self-governing, they are automatically managed by computers rather than individuals. 

5. Accuracy

The best thing about Smart contracts is that they are initially coded with the details in mind. That is why various business owners and individuals say they are so reliable. Initially, the terms of the agreement are explained in great detail. A record of agreement on the Blockchain is unalterable, so the details are explicit and immutable.

Cons of Smart Contracts

1. Legal Implications

Smart contracts are a new phenomenon with weak oversight and little to no regulation. As a result, they can have serious implications for the nature and content of the agreement. Because the details are not legally binding, and some serious issues can arise later on. For instance, if a party wants to withdraw from the agreement down the road, will the Smart contract be enforceable in a court of law? Moreover, what resources does the party have, and what ways the party should adopt to interpret the contract legally.

2. Sometimes Code Can Be Faulty

Smart contracts are only good as the code on which they are initially based. Most of the principle involved is open-source, and anyone can easily alter the base, and cybercriminals can take advantage of this flaw. And while the immutability of Smart contracts is often seen as a benefit, if there are some bugs or errors in the foundational code, these problems will be permanent in Smart contracts. 

3. Smart Contracts are Not Flexible

There is also a lack of flexibility in Smart contracts, and it isn't easy to alter them in any way once they have been implemented. This means that the parties should be very careful when they draft and code them through the process. In contrast, this is often positive for businesses, so there can't be any mistakes or unclear language or terms. 

4. Scalability

Scalability is always a concern for products, technologies, and Blockchain tools. For simple agreements, smart contracts can take place quickly, but this is not necessarily the case when they need to be deployed at scale. This is the main problem for large businesses and organizations that intend to use smart contracts for complex and involved agreements and matters.

In a Nutshell

Smart Contracts are entirely the new phenomena of this new digital world. But it is also a fact that the economy of smart contracts is still in its infancy stage but seems to have a very bright future. Smart contracts are still developed and improved; these contracts have all the chances to become an excellent replacement for a standard one. So before going with these contracts, it would be great if you could consult with a professional company that provides proven smart contract development services and help you to unlock your business value potential.