A contract should be considered sacred, not a piece of paper one can easily scrap.
It is a written (or verbal) agreement between two or more parties or individuals with rules all participants must meet, otherwise, penalties apply. A contract is a promise and an obligation for all participants.
Is this the case, though? In our societies, the Law doesn’t protect contracts as well as we thought. Contracts today, at an overwhelming rate are void since one side often fails to deliver its promises.
Trust is a requirement, even when one is signing a contract. The cost of one participant breaking the contract could reach multiple times the value of the proposed obligations when lawyers take control.
Smart Contracts today are the solution in this chaotic economic environment. Smart Contracts are predetermined sets of rules that automatically apply with no interference by governments, courts, corporate interests, or corrupted state officials.
Smart Contracts in Finance and Governance are a Necessity
Smart contracts under a decentralized network deliver a trustless environment, with certain rules and criteria. Under no circumstances do trust or individual “credit scores” have any importance.
Not just smart contracts provide an automated process in contracts but also eliminate the need for mediation, lawyers, government intervention, police interference, and a bunch of “professions” that live under the premise of enforcing contracts.
Smart Contracts are transparent and don’t offer a ground for corruption to flourish.
Everything is automated and we bypass any intermediaries that are currently required to execute the terms of contracts.
Smart Contracts will bring amazing world applications and boost economies to unforeseen productivity. A decentralized network, or DAO, removes the requirement of trust. Smart contracts nullify the overwhelming percentage of written contract violations, excessive legal costs, and cost of any (private or state-run) intermediary, by executing certain “ifs” and “if not’s”.
In case participants break the rules of a contract and violate the agreement, the contract becomes immediately void and automatically liquidates collateral. There is no need for legal intervention, months or years of a court battle, and increased cost. The archaic justice system needs a revamp as we move into the digital economy.
Each participant knew the rules of the contract beforehand and understood the risks undertaken.
Today, each participant can violate almost any contract, any agreement made, and try to extract financial gain by not honoring the agreement, and not meeting the obligations.
The malicious contractors, motivated by greed, will try to break the contract and damage financially the rest of the participants in an alarming rate of cases. And this happens since the Law intervenes when a contract is broken. Hiring lawyers and persecuting the side of the contract that abused its rules creates a vast cost.
The financial risk, when “the Law” gets involved, is excessive. A system based on this kind of contract abuse and trust is bound to fail. Eventually, all this process creates additional operational costs for businesses, entrepreneurs, and individuals.
The role of smart contracts is to eradicate liabilities. There are no delinquencies and no added cost in running a business. One business’s wrongdoing is the other business’s demise. In a microeconomic scope, a system that works with debt is bound to fail as the risk increases. The risk multiplies when economic stability is lost. I warn the small and medium entrepreneurs today to take extra steps to protect their businesses from what is coming.
In Conclusion - Heralding the Decentralized Digital Economy
The contract rules are clear and so are the smart-contract rules. Nobody should get away from violating trust, and to achieve this, we need to eliminate this trust from any financial equation.
There is no need for justice system intervention. It can’t keep running this way as it only helps the malicious actors.
Trust is not a variable on any economic indicator either, yet our whole financial system is based on it. We trust our governments will not reach a socialist state size and intervene in every aspect of the economy, but currently, we watch practices that will have devastating effects for the rest of the decade and beyond.
The opposite of what we were expecting happens. We trust Capitalism; it works until it stops working, though.
It stops working when common sense doesn’t apply, but one party in an agreement is trying to extract more from it by breaking its rules.
While I am examining mostly the microeconomic scale and not intending to fall into the composition fallacy, I see smart contracts as a tool to help humanity progress and our economies develop rapidly. This (smart contracts) is an example where the positives outweigh the negatives in both the individual case and in the general economy
With transparent, decentralized, and automated processes, we eliminate any added cost of a contract violation. In an instant, contract rules are executed, leaving no place for government interventions or encouragement of populist agendas.
Smart contracts, where enabled, will encourage healthy economic competition, reduce government spending, reduce the cost of all operations and create an admirable economic environment, eliminating discrimination and inducing honest growth.
Smart Contracts will make many unecessary and unproductive organizations obsolete. We shouldn't be required to hire a lawyer and find justice years later and only after paying extra expenses when one of the two parties rips up a contract and not honour the commitment.
The current law-system is inefficient and promotes favoritism and corruption. It deters honest people from becoming active members of an economy unless they also violate contract agreements and become part of this corruption and greed.
Originally published at Hive (Proof Of Brain)
Lead Image Source: Unsplash
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Great. I shall your thoughts. Keep it up