Example of Smart Contract operation
Since the idea of Smart Contracts was mostly spread in Crowdfunding, ICO will be the best example for understanding smart contracts’ essence.
Let us suppose that you, as an investor, want to invest in a promising startup, which services you would like to use in the future. In this case, it will be profitable for you and the startup’s owner to organize a crowdfunding reception of funds, in which you as an investor will be able to use the project services at a low cost, and the entrepreneur will be able to raise funds for the project and receive the first orders.
But there were several negative points on the classic crowdfunding sites: first of, the sites take a fee, second of, there is a risk that for some intentional or unintentional reasons, the funds will not be collected or they will simply go into the pocket of an dishonest fundraiser.
Crowdfunding that is based the smart contracts technology significantly improves the process of raising funds:
Let us say, it is necessary to collect at least $ 1 million for the project, in other words, if a million has not been collected, then there will be no project. All conditions for funds raising are written down in the relevant smart contract and ICO starts being conducted.
In this case, a smart contract allows to raise funds without involvement of a third party, i.e., all transactions occur only between investors and project’s owner, which eliminates high fees in case of significant sums. Also, according to the written conditions, smart contract ensures that if the minimum threshold of raised funds has not been reached, all investors will receive their deposits back.
That is how Smart Contracts transforms technologies, but do not forget that in addition to the advantages, there are always disadvantages, esspecially now, during the crypto market development.
It is also necessary to understand that because of immutability and transparency of smart contracts whilst their application, their competent development and audit become a critical. We wrote HERE about what you need to know before you create a smart contract for ICO. Misunderstanding of smart contracts’ functioning features causes a lot of errors and flaws that can cost large financial and reputational losses.
Therefore, it is very important to contact experienced and qualified specialists for developing smart contracts. If you have an idea of a smart contract, please contact us and we will answer all your questions.
Sincerely, Grox Solutions.