Can a Smart Contracts replace my banking system in future ?

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In today’s world our traditional business contracts are all done manually by legal teams. There is always a specific set of terms and conditions involved in any contractual agreements, we see a requirement of a financial institute, insurers, legal advisors in between the deliveries and payments for any business contracts. It’s human driven manual approach wherein the contracts are written on the discretion of a person or a team or a specific institutional policy. Although this approach of agreement works in 99% of the cases, it consumes time and adds up indirect cost. These indirect costs are not recoverable. In this blog I will try to highlight a parallel way of approach using blockchain smart contracts. Although it’s quite common in Blockchain world, but let me stress it once more to rethink if we still need our banking systems

Imagine how a vending machine is programmed, how the business model works and how the technology supports the business model. In vending machine, you can buy a product. The system contains a lot of products with the prices. You choose a product and insert the coin or a note. You get the product and the change if any is returned. Suppose if a can of coke costs 1.20 and you insert 2 euros coin, it can either return you 50×1-20×1&10×1 or 50×1-10×3, or any combination of 50, 20, 10, 5, 2 or 1 cents. The logic is pre-determined and depending on existing coins available the system chooses the best condition to return. In case of not availability the money gets returned without the product. Does it require a human? No, does it require a Bank? No. Can you change the input midway through the process? No. The entire process is executed without a human involved. This business model is unique because technically speaking there is no involvement from any third-party during transaction, if the Vending machine is programmed properly

Smart contracts work works in the same way. It’s a program with a fixed set of input and output in a distributed ledger system. Typically, contract is signed, a person or a firm agree on deliverables. For  Smart Contract programs, it starts delivering the results of its own with payments are auto-credited  without the intervention of any financial regulators or institutes. It’s a complete end-end programmed approach. The logic is predetermined, the deliverables are fixed, the output requirements are predictable, and the payments are un-interrupted. It can’t be manipulated ideally to change the outputs once its configured and starts operating for a delivery.

Smart Contracts does the same set of activities in a predetermined way. It’s a program which does the work of a lawyer, insurer and Bank. It ensures absolute transparency.  The usage is limited but it has a potential to impact a lot of industry in aviation, telecommunication, banking, insurance, education and health. If precision is required in delivery, smart contracts are the ideal way to move ahead. There may be some limitations also worth mentioning- Most of the countries are yet to approve transactions which are non-regulated by central banks, Smart contracts are smart because of the developer who write the code. To make sure that the delivery and payment works hand in hand, it must be perfect. Bugs and Errors in the code these can have serious monetary implications. In reality requirements vary from time to time and customer to customer, it has limited contracts reusability

Ethereum which is similar to Bitcoin is used in Smart Contracts. Ether contains a series of cryptographic public records linked together with date, time, changes details stamp. In a distributed ledger it becomes almost impossible to change an ether without approval from all other nodes.

Cryptocurrencies are gaining popularity and self-regulated it doesn’t need a Central Bank to approve. This possibly makes it one of the greatest disrupters for future if allowed to use. Not using a Banking system can’t enforce me to pay taxes. It’s a different thought or maybe I am thinking of creating a parallel banking system globally. What do you think ?

Ayan Bhattacharya

About

Has 14 years of experience working with Infrastructure Services. Currently working as a Azure Cloud Infra Architect. Ayan has worked for multiple clients in multiple countries. Interested in innovative activities and ideation. Ayan has spent a valuable amount of time working in the Cloud domain.

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