The widespread adoption of blockchain is expected to increase importance of smart contracts, which are self-executing contracts inscribed into lines of computer code. As stated by Market Research Future, a market analysis company, the global smart contracts market is expected to reach around $300 million by the end of 2023, at a 32% compound annual growth rate (CAGR), between 2017 and 2023. In a conversation with FE Digital Currency, Amanjot Malhotra, country head- India, Bitay, a cryptocurrency exchange, talks about the benefits of smart contracts and how it can influence Indian financial sector. (Edited Excerpts)
What is the connection between smart contracts and blockchain?
Whenever a transaction takes place through execution of smart contracts, the information gets stored on blockchain network. This process happens through proof-of-work (PoW) mechanism, which refers to the method to verify and track transactions happening on blockchain. Blockchain contains all the timestamps, which is the digital record of an event, related to smart contract based transactions.
What are the benefits of smart contracts compared to traditional contracts?
Smart contracts can ensure transparency of transactions, as they are surveyed by blockchain validators, who are responsible to verify digital transactions within the network. On the other hand, transactional contracts have issues related to forgery, confidentiality, and the involvement of a middle party.
For which blockchain related sectors are smart contracts important for?
I believe that sectors such as healthcare, supply-chain, education, among others, can avail blockchain for different use cases, and have started to utilise smart contracts. Right now, main issue is the one dollar fee that is required to make transactions happen on blockchain. In the financial sector, smart contracts can bring a lot of benefits.
How secure are smart contracts?
I feel that smart contracts are not completely reliable. In general, smart contracts carry a reduced risk of fraud as they are audited by security experts who scan them for vulnerabilities. It is still an ongoing process.
Are smart contracts susceptible to regulatory oversight?
It is not possible as smart contracts are Internet based codes. If a decentralised exchange or protocol wants to open its base of operations in another country, then, it should follow its financial regulations. Otherwise, smart contracts are beyond regulations as they are not backed by Know Your Customer (KYC) mechanism.
How viable are smart contracts in Indian blockchain scenario?
Indian blockchain scenario is not that different from global blockchain scenario. Almost all the top blockchain networks have their base of operations based out of India. The level of smart contract oriented transactions will go up in Indian blockchain market if the one dollar fee is brought down. In Indian financial sector, smart contracts can ensure the ease to lend and borrow funds, and loans can be processed faster. I feel that if central bank digital currency (CBDC) is introduced then it can benefit Indian financial sector for the long-term.