Exploring the Impact of Smart Contracts on Financial Transactions: A Review of Blockchain Applications

Abstract

Abstract: This article explores the impact of smart contracts on financial transactions, focusing on their applications and potential within blockchain technology. The objective of this study is to provide a comprehensive review of the role that smart contracts play in enhancing automation, efficiency, transparency, and security in the financial sector. Using a descriptive narrative review approach, the article synthesizes existing literature on blockchain and smart contracts, analyzing their use in banking, securities trading, insurance, supply chain finance, and decentralized finance (DeFi). The review draws upon academic studies, industry reports, and technical assessments to evaluate the benefits of smart contracts and the challenges they present. Key findings indicate that smart contracts offer significant advantages in reducing operational costs by eliminating intermediaries, speeding up transactions through automation, and providing a secure and transparent framework for financial agreements. However, the adoption of smart contracts faces barriers, such as regulatory uncertainties, technical vulnerabilities in smart contract code, and scalability limitations of blockchain networks. Furthermore, the article highlights the importance of regulatory frameworks that address legal enforceability and compliance issues, while also proposing the need for standardization and interoperability across blockchain platforms. In addition, the integration of smart contracts with artificial intelligence (AI) and the Internet of Things (IoT) is discussed as a future innovation that could further enhance their functionality. The conclusion emphasizes that while smart contracts have the potential to transform financial systems, their widespread implementation requires overcoming current technological and regulatory challenges. Future research should focus on developing scalable blockchain solutions, improving security protocols, and creating clearer legal frameworks to facilitate the broader use of smart contracts in financial transactions.