Smart Contracts: Bridging Traditional Industries and Blockchain Innovation

Smart contracts are emerging as a pivotal technology in the blockchain arena, offering a compelling blend of automation, security, and efficiency. Defined as self-executing contracts with the terms of the agreement embedded into code, they are designed to execute automatically when predetermined conditions are met, without human intervention. This capability not only accelerates transactional processes but also ensures a high degree of accuracy and trustworthiness.

Smart contracts operate on blockchain technology, where each contract is stored as a block in a chain. It’s important to grasp that these contracts are immutable once deployed, meaning they cannot be altered, which enhances security and trust. The terms of the contract are executed by a distributed network of computers, making them decentralized and resistant to tampering and fraud.

Figure 1 – Smart Contract Workflow

Source: Vikara Capital

Real-World Applications

Financial Services: In the financial sector, smart contracts can significantly streamline processes like the issuance and settlement of bonds or equities. Traditionally, these transactions require several intermediaries, including brokers, clearinghouses, and custodians, each adding time and cost. With smart contracts, these transactions can be automated, executing the terms instantly when conditions are met. For example, a bond’s interest payments can be distributed automatically on their due dates to bondholders, reducing administrative burdens and enhancing the speed of transactions.

Real Estate Transactions: The potential for smart contracts in real estate is profound. Consider a scenario where a property sale is contingent upon certain verifications and checks, such as ensuring clear titles and the completion of payments. A smart contract can manage these conditions, automatically transferring ownership once all criteria are met. This technology could drastically reduce the need for manual processing and the associated human errors, streamlining property transactions from months to just days.

Supply Chain Management: Smart contracts provide a high degree of traceability and accountability in supply chains. They can automate and verify compliance at each stage of the supply chain without human oversight. For instance, a smart contract could automatically release payments to a supplier once a shipment’s GPS data confirms that goods have reached their destination. This not only speeds up the process but also reduces the risks of disputes and delays.

Insurance: The insurance industry can benefit immensely from the automation and exactitude of smart contracts. In parametric insurance, for example, payouts can be triggered by the occurrence of predefined events, such as natural disasters measured by specific parameters (e.g., earthquake magnitude). Smart contracts can assess data feeds in real-time, and if the parameters match those predefined in the contract, claims can be processed and paid out automatically, minimizing the assessment time and reducing fraud.

Benefits of Smart Contracts

  • Reduced Operational Costs: By automating tasks that were traditionally handled by multiple intermediaries, smart contracts cut down on fees and administrative expenses.
  • Enhanced Security: Utilizing blockchain technology, smart contracts are safeguarded against unauthorized changes and hacks, ensuring that all parties can trust the system without needing a central authority.
  • Greater Transparency: Each transaction and its associated outcomes are recorded on a blockchain, visible to all parties and immutable, which greatly reduces the potential for disputes and increases trust.

Smart contracts are not just a technological innovation; they are reshaping how traditional businesses operate, making systems more efficient and secure. As blockchain technology continues to evolve, the scope for smart contracts across various sectors is bound to expand. For high net-worth investors, understanding and leveraging this technology could lead to significant advantages in terms of operational efficiency, security, and investment opportunities in the digital asset landscape.

Alex Prior
Chief Strategy Officer
Vikara Capital


Vikara is an open-ended fund, with investors able to add or redeem monthly. Please contact usif you would like to discuss anything further.

Vikara, in Sanskrit, describes the process of change. Its definition is constantly evolving, changing with economic cycles, technology, and geopolitics. It is a transformation of thought or logic, a modification in the direction of travel, an alteration in action or participation. It is one thing to want change, but another to drive it. We believe in a world where commerce doesn’t need intermediaries. Where people are paid directly for content, time, and effort. Where privacy, data and free speech is given, not something to opt-in for.

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