Will Smart Contracts Revolutionize How We Do Business?

By Features PCmag

Most technology enthusiasts and business owners are at least cursorily familiar with Bitcoin. However, very few people are aware of the underlying technology that makes the virtual currency possible. Blockchains are the public ledgers of all Bitcoin transactions, but they are also a revolutionary exchange method that is changing how contract management is handled.

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At their core, Blockchains allow digital transactions to occur without a middleman, such as a bank, lawyer, or a social network (think eBay or Amazon). That's because Blockchain transactions are built with rules-based steps, or blocks, that automatically progress only after the pre-established stage of the transaction has been completed. For an extremely simple example: If I agree to purchase a digital file from your company, the file will only be released to me once my payment has been processed by your virtual currency provider. More thoroughly: Each predetermined chain of a transaction creates and releases the next chain. If one chain of a transaction isn't fulfilled properly, the next chain can't be completed.

Because of this technology, Blockchain ledgers have given birth to smart contracts and the programmable economy. Through the use of sensors, code, and pre-determined deal workflows, Blockchain and smart contracts can ensure the smooth progression of sales, services, and agreements without the oversight of bankers, lawyers, and compliance officers. Companies such as Bloq and Symbiont are helping to deliver the Blockchain technology and programmable smart contract language to bring these transactions to the mainstream.

In this article, I propose a few ways that Blockchain technology and smart contracts could one day change how service and delivery agreements are executed. However, it's important to note that we're still a long way away from smart contracts existing as the normal method of transaction-banking. Although Blockchain and smart contract technology companies exist, this is still a nascent industry that has yet to answer for several major adoption hurdles.

Digital Rights Management
Smart contracts might one day limit how software and multimedia content is shared on the web. Think about how often you share passwords to streaming services with friends, or copy and alter an image off of Google. Smart contracts and the underlying Blockchain architecture may be able to limit how often this occurs by digitally tracking an asset's usage, alerting the owner of the original proprietary file, and possibly disabling access if a breach of service has occurred.

This is especially important for artists and the companies that distribute their content. Burning digital files onto Blu-rays and DVDs would essentially come to an end if Blockchain technology is applied to the specific files associated with the copyright contract. An article in the Harvard Business Review even posed the possibility that smart contracts in digital music files might enable artists to better sell directly to consumers without the need for labels, lawyers, accountants, and managers to get involved because royalties and licensing agreements would be paid out automatically depending on the data delivered by the Blockchain.

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For businesses, the corporate-wide use of software will be better monitored and restricted by the software provider. The users and devices that access the software will be digitally restricted by more than just their IP addresses, and any changes and alterations made to the software can be restricted and monitored by the software provider based on the terms of the smart contract and the applied Blockchain logic. 

 

Networking and Data Transfer
Although businesses can track the performance of their networks through network monitoring software, the ability to argue that a telephony or cloud service provider failed to perform its duty can be hard to prove in court. However, by using Blockchain technology and smart contracts to oversee the life of the agreement, the service provider and the customer will be able to build in the performance parameters to withhold services or payments depending on the performance data readouts.

Did your site go offline for a specific amount of time? Did your bandwidth shrink exponentially? Rather than bring your network monitoring data into a court of law to dispute the terms of your service agreement, the smart contract can automatically withhold payment or offer credits to your company without requiring lawyers and bankers to get involved.

3D Printing
Today, if you design a product that can be 3D-printed, you can't control how often the source file is used to manufacture the product—meaning you only get paid for the initial design. The previously mentioned Harvard Business Review article envisioned Blockchain as a way to provide transparency for corporate manufacturing. But what about small businesses that design few products that could eventually be printed on many devices?

Smart contracts would theoretically make it possible for a designer to limit how many times the design is printed, or get paid every time the product is produced. If the file is sent to a 3D printer 35 times, the designer would get paid 35 times. However, to protect the customer, the Blockchain could also detect whether or not a print failed, and restrict that individual payment.

 

Delivery of Goods
Because of sensors, GPS, and Blockchains, you could theoretically apply smart contracts to all deliverables, both physical and digital. If your shipment of furniture was late, the smart contract could void or reduce your payment. However, to protect the vendor and the delivery company from liability, the smart contract could also monitor how the delivery was made to determine if an act of God or something unavoidable occurred.

For example: Your company orders office furniture, but the shipment arrives late. You argue that you shouldn't have to pay full price, and the vendor argues that the late delivery could not be avoided. This argument could wind up in a court of law. You'd have to pay legal fees, you could lose the judgment, and you'd wind up paying even more for your late furniture than if you'd never argued in the first place.

With a smart contract, the sensors attached to the shipment would be able to determine if the driver parked the truck at a rest stop for a long nap, or if the truck was damaged in an accident or a natural disaster. Because of the pre-determined terms of your smart contract, your company, the delivery company, and the furniture vendor would know exactly who is liable, and payment would be restricted or applied automatically.

In a Far-off Future
Although these use cases may seem appealing, the smart contract technology available doesn't offer the automation and simplicity required to normalize the practice. Additionally, few companies actually accept Bitcoin, or virtual currency, and those that do typically go through third parties that pay the companies "accepting" Bitcoin actual dollars in exchange for a percentage of the Bitcoin being transferred.

But let's pretend every company in the world accepted Bitcoin directly as a standard practice: The physical and digital technology, custom coding, and smart contract scripting would require so much labor for each transaction that only companies with extremely deep pockets would be able to afford to execute smart contracts.

Another important thing to remember: The security required to protect the code and the currency involved in every smart contract would be massive. The technology provider would have to guarantee that no one would be able to hack into the Blockchain to adjust the logic for their own gain. Perhaps more importantly, the technology provider would have to ensure that no black hats would be able to find their way from the Blockchain into the accounts storing and accepting the virtual currency associated with the smart contract. So, until someone can simplify and automate the addition of Blockchain language to digital files and to the code associated with physical sensors, and then protect the currency associated with the transactions, smart contracts will exist only as outliers.

This article originally appeared on PCMag.com.