Smart Contracts: Definition and Uses

Caitlin Long

Financial services will someday be mostly provided by software. The transformation has already begun, and from it society will win. Smart contracts will automate and streamline business processes that today are handled by intermediary institutions that introduce cost, latency and risk where these would not otherwise be.

Today, financial services are often bureaucratic, slow, error-prone and still surprisingly paper-based. When you borrowed your mortgage, for example, a file of paper documents changed hands at least three times after the closing at your lawyer’s office before finally landing where it will stay until you pay off your mortgage. When businesses borrow via syndicated loans, banks communicate via a fax machine – something that still happens an estimated 25 million times annually in this market – and each bank separately keys in the data contained on that fax to its database, and then reconciles that data with the other banks. Such duplication and replication are a drag on the economy. The process of fixing these issues with smart contracts and blockchain technology has already begun.

In a decade or two, smart contracts will enable all financial services to be peer