The Blockchain Revolution and Smart Contracts

1. What is blockchain? And why is this new technology revolutionizing the world?

Blockchain is one of the most disruptive technologies of this century and is revolutionizing not only our economy but all kinds of fields. Blockchain is essentially a decentralized database that records transactions. The chain is connected and distributed across a network of computers, which in turn is protected by highly advanced encryption (similar to the cryptography used in digital signatures), and is therefore highly secure.

To use a clear analogy from everyday life, it would be like trying to delete an old message in a WhatsApp group chat to hide certain information. This wouldn’t be possible on the blockchain, since it contains the complete history of all transactions that have ever taken place on the network. For this reason, it is believed that the blockchain will revolutionize the entire administrative management structure of governments and financial services in the future.

2. From Concept to Reality: How Will Blockchain Technology Transform the Financial Services Industry?

Just as the Internet decentralized information, blockchain aims to decentralize certification processes. In other words, it seeks to decentralize the “trust” placed in intermediary institutions (banks, credit card companies, governments, etc.) and transfer it directly to the network of individuals who are part of the blockchain.

Let’s take a bank transaction as an example. Imagine that a person named Ana wants to send 1,000,000 guaraníes to another person named Benjamin. Typically, banks act as intermediaries, effectively centralizing the transfer of funds. In this case, Ana would ask her bank to transfer the money to Benjamin. The transaction can take a few minutes or several days, depending on the amount, the bank, and the country where the transfer is made. The transaction does not actually require the physical transfer of banknotes; rather, the intermediary banks simply adjust their account balances using software. The problem here is that neither Ana nor Benjamin has any control over the process, since only the banks have all the information. Both depend on those banks (and their fees) to carry out the transaction.

What blockchain essentially proposes is to eliminate intermediaries and decentralize the entire management process, providing a high level of security and integrity by acting as a database that contains records of every transaction executed on the network. Control of the process lies with the users, not with the banks as in the previous example. In this case, both Ana and Benjamin would become participants and managers of the banks’ ledgers. This example can be applied to other types of transactions, not just money transfers. That is why blockchain represents a major paradigm shift in the entire financial structure as we know it.

3. What are its uses, advantages, and disadvantages?

The applications can be very diverse. These include: cryptocurrencies, applications, platforms, and the storage and distribution of information. At the government level, blockchain could be used to facilitate the monitoring and control of certain tasks such as: voting systems, tax collection, passport issuance, property registration, and the distribution of grants and other benefits.

Among the advantages of blockchain, it is worth noting the reduced transaction costs, since—by eliminating intermediaries—there are no additional costs incurred by third parties. Similarly, blockchain speeds up transactions because it operates 24 hours a day, 7 days a week. Imagine how long it takes to transfer money to another country using a bank as an intermediary. In short, with blockchain, transaction time and costs could be minimized, which would lead to greater efficiency in doing business.

Among the main disadvantages is the current difficulty in implementing it. Since blockchain is a relatively new and disruptive technology, it takes time to recruit specialized personnel and integrate it into the systems of governments and companies. This adaptation process can take several years.

Another fundamental issue is that of anonymity, particularly with regard to the use of cryptocurrencies. Since some cryptocurrencies offer special anonymity features, they could facilitate certain criminal activities such as money laundering, online drug sales, etc. This raises certain legal questions that have not yet been addressed in our legal system. It could be said that, both nationally and internationally, there is a sort of “status quo” in this regard; and this lack of regulation, in turn, leads to stagnation in the development and evolution of this technology.

4. Blockchain and Smart Contracts: Security issues, errors, and inefficiencies can be very costly when a smart contract is deployed on the blockchain.

From a legal standpoint—and especially when it comes to the costs of smart contracts—some of the advantages of blockchain can become a disadvantage, depending on how you look at it. Before discussing security costs, errors, and inefficiency, let’s first look at what smart contracts are and how they work within the blockchain.

Smart contracts are a key component of blockchain technology and will form part of the new generation of online contracts. While a typical contract is written in natural language (Spanish, English, etc.), smart contracts are written in computer code using specific programming languages. These languages use strict algorithms designed to achieve the contract’s intended outcomes. In other words, the contractual clauses must be programmed step by step within the blockchain.

Therefore, smart contracts are essentially autonomous, self-executing computer protocols that facilitate the performance and enforcement of agreements between two or more parties. Smart contracts offer numerous advantages. They can provide greater security than traditional contract law and reduce the transaction costs associated with negotiating, verifying, and enforcing agreements.

However, one of the main challenges of smart contracts will be incorporating the laws of the “physical world” into digital code. This means that smart contracts must be developed, step by step, with the help of a programmer, which in turn generates additional costs during the programming process. Likewise, as we mentioned earlier, one of the fundamental characteristics of smart contracts is their “immutability.” No “amendments” or changes can be made to smart contracts. In other words, what is an advantage—due to their high levels of security—can become a sort of disadvantage, since any change one might wish to make to a smart contract would require reprogramming it, which generates transaction costs.