Removing third parties speeds transactions and reduces their cost
CFOs and finance departments are always looking for reductions in cost and increases in speed and efficiency in business engagements. One option that's attracting more attention is the smart contract.
A smart contract is an electronic agreement that uses computer programming and blockchain technology to execute without third parties, such as the banks that verify payments, said Stan Sterna, J.D., a Chicago-based vice president with Aon, which provides the AICPA member insurance programs.
The smart contract can settle faster at a lower cost, freeing up time and resources that you can focus on other business.
The building block(chain) for smart contracts
Blockchain technology is essential for smart contracts to work. To understand why, it's important to remember that a blockchain is a distributed, digital ledger to which certain computers, or nodes, are granted access. The first blockchain was set up to record transactions of the digital currency bitcoin. When a transaction such as a bitcoin sale takes place on a blockchain, the details of the transaction are automatically recorded by both sides of the transaction and stored in a block of information that's immediately shared with and verifiable by all nodes on the blockchain.
In the case of smart contracts, blockchain technology automatically performs contract actions when predefined conditions occur, said Sterna, who has 20 years of experience in consulting CPAs in cybersecurity and risk. The blockchain keeps track of contract terms and enables the automated completion of next steps in the contract process once it verifies that a step is fulfilled.
You can move slowly and methodically to assess whether a smart contract investment is worth it. Determine the internal use cases and resultant benefits; from there, educate internal and external constituents and follow that with a beta program to test the proof of concept.
Read full article in Journal of Accountancy