We have all been hearing how Blockchain technology will
revolutionize the financial world, decentralize finance, and hugely shake up the
banking sector, but just how will that happen?
اضافة اعلان
Well, one breakthrough of Blockchain technology is an
innovation known as smart contracts, you’ve probably heard of it, but what is
it and how does it really work?
When
Bitcoin’s whitepaper was first launched in 2009 it
called for creating trust in a trustless environment, i.e. the world, this
basically means allowing people who do not know each other to work with each
other needless of trusting each other. This is intended to scale up the size
and frequency of international trade, commerce and investment.
From a technical standpoint, a smart contract is a set of
computer functions designed to autonomously execute once certain conditions
apply. For those sets of functions to become a contract they need to be locked
and rendered unchangeable once published.
Imagine a real-world situation where a real estate
contractor intends to raise funds to build a new hotel in the heart of Amman
and plans to raise funds for the project through an investment round from
foreign investors.
The contractor claims he needs $1 billion for the project
and declares all the suppliers he will be working with, furthermore he promises
he can get the project built and delivered in 10 years. Previously, investors would
have needed to run all the due diligences on the contractor, on his suppliers
and on the financial projections before deciding to invest or not.
With decentralized finance (DeFi), finance powered by
decentralized applications that are governed by
smart contracts, investors
would still need to do their due diligences just as they would in legacy
systems. But, here’s how it gets interesting: Suppose an investor makes the
choice to invest, once they put in the money, they must invest more time and
effort to stay up to date on the process of execution of the project and more
importantly the flow of finances during the building process.
Did the contractor really pay the steel company that he
promised us as investors he would use as a supplier? Did he pay on time? Did he
pay the amounts he promised us he will pay them or was there money siphoned
out?
With smart contracts, an investor can make sure that once an
investment is made, the contractor has no control over the money given that the
contractor signed a digital contract were all the terms were coded dictating
exactly when and how much will be transferred from the custodial wallet serving
as an escrow account for the project to the wallet of the steel supplier during
the stage of the project that he was supposed to and for the amounts agreed on
autonomously and automatically. This means that smart contracts strip our
certain stakeholders from the power of controlling the money and replacing them
with computers.
In order for smart contracts to be built we will need strong
collaboration and cross skills of finance and IT to enable the financial terms
and conditions to be translated into lines of code, so finance guys get your
coding skills on and IT people, start delving into finance.
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