The Future of Doing Business
Smart contracts are among the most promising features of blockchain technology. One of the disadvantages of transactions conducted in the traditional way is that sender and recipient require banks or other institutions. Blockchain technology has the potential to offer parties to enter into contracts without intermediaries.
Such contracts are known as “Smart Contracts” and allow application in a vast range of situations. Smart contracts link conditions upon which a payment takes place to the fulfillment of certain requirements. For instance, a lessee has to consider that he can no longer start his car if he does not transfer payment for rates to the lessor on time. Smart contract conditions could also stipulate that funds are for specific purposes only. A sender wants to ensure that a monthly payment of PURA is spent on a specific item? No problem – if the recipient tries to spend these funds somewhere else, this payment will not be effected.
The challenge of efficient transaction times
At this point in time, the devil is in the details. A blockchain only releases a transaction once all identical databanks receive and confirm this transaction. The resulting latency period of a blockchain network is of little matter if a transaction is not urgent. Still, the waiting period would delay daily business. Correspondingly, no gas station owner would let a customer drive off after filling up as long as there is no confirmation of the transaction by the blockchain. In the interim period, cancellation of the transaction could still occur. In terms of effectiveness, such waiting periods are not in line with mass adoption. Consequently, the challenge is to effect real-time transactions that are a vital component of digital transformation. However, it will only be a question of time until technology will resolve this challenge.
(Source: This article is based on a post by Karl-Heinz Land on It-Daily and IT-Management Magazine 11/2017.)