Blockchain for Business: Smart Contracts
We hear a lot about blockchain these days. Most of what we hear, however, has to do with cryptocurrencies.
But there’s a lot more to blockchain than that.
In fact, when it comes to blockchain for business, there are increasing numbers of applications to help things run smoother. You might be surprised at the ways blockchain can benefit your business, even if you never complete a single Bitcoin transaction.
One of the most accessible right now is the use of smart contracts.
What are Smart Contracts?
Essentially, smart contracts are contracts that fulfill themselves. Of course, the fulfill themselves according to the terms you set.
Smart contracts use computer code to set the terms of the agreement, and then enforce their fulfillment. So, if you wanted to agree that payment would be sent as soon as certain actions were completed, the smart contract could arrange that.
You don’t have to worry about human language and talking things out of context. The computer code is set up as “if-then” scenarios that make it a matter of meeting the terms in order to ensure the contract moves forward.
Smart contracts offer an automated way to use blockchain for business with a setup similar to the way Bitcoin transactions take place.
Plus, because blockchain operates on a public level, the smart contracts would be easy to see and monitor. There’s a public record as well as a contract that basically manages itself once the code is set.
Using Smart Contracts in Business
You can see, almost immediately, how useful blockchain for business can be in the realm of smart contracts.
All you have to do is code the terms of the agreement, and then make sure that all parties carry them out.
In order to do this, you need what is called a distributed ledger system. The good news is that there are already companies ready to help you manage your smart contracts with the help of distributed ledgers.
R3 is one of the leading companies that offer these ledgers so that you can use a hybrid platform to easily create and execute contracts — without the need for specialized knowledge of blockchain coding.
When you use smart contracts, you know that the terms will be fulfilled. Otherwise, the other party won’t get their end of the bargain. It’s a way to publicly monitor an agreement and make sure everything goes according to plan.
Automatic Fulfillment with Blockchain
One of the great things about smart contracts is the aspect of automatic fulfillment. You don’t have to keep checking in and keeping a list of transactions. Instead, you can set up your smart contract to take care of things automatically.
If you work out an agreement about who owns the rights to a piece of intellectual property, you can set things up so royalties are paid automatically, and distributed in proper proportion each time a work is used.
It’s possible to write a smart contract so that payment is sent automatically, dropping into all applicable accounts without the need to go back through and tote everything up at the end of the month. It’s a seamless way to make sure you get the benefit of a contract, without all the work that goes into enforcing it.
Complement Traditional Contracts
Of course, sometimes things move slowly in the business world. Blockchain for business is growing, and more mainstream companies are signing on, but that doesn’t mean that blockchain is all of a sudden the way everyone does business.
The good news is that it’s possible to use blockchain and more traditional contracts in business. These smart contracts offer a great complement to traditional contracts.
You can set the smart contract in motion to take care of the fulfillment end of things. At the same time, you can have a more traditional contract filed away somewhere as a record that people are more comfortable with.
It’s important to recognize, too, that as yet smart contracts are somewhat lacking in the area of amendment. It’s possible to add on, but if you need to make significant changes to an agreement, you might need to create a new contract altogether. Your old copies, filed away, can be reference points for the future.
However, remember that, thanks to the public ledger aspect of blockchain, you can still review different versions of the contract openly.
Another nice thing about this system is that you don’t have to worry as much about one of the parties altering the contract unexpectedly. It’s all public, and the execution is not something that can be done by a single party. It’s like adding an automatic third party to an agreement to make sure everything is done properly and according to the terms you agreed on.
States Recognize the Legality of Smart Contracts
There are already laws that recognize the legality of electronic signatures and electronic records for business purposes. That’s something we’ve seen for quite some time.
But where do smart contracts fit into the equation?
Well, even though it’s common sense that blockchain transactions should be seen as electronic records. However, because they often appear in computer code, it’s not always clear that they are records in the sense that we are used to describing them.
This is where different state laws come in.
Recently, Arizona passed a law recognizing that signatures secured using blockchain are considered electronic signatures. On top of that, the law also recognizes smart contracts managed with blockchain are considered electronic records.
A similar law, meant to ensure that blockchain is admissible in court, was passed in Vermont not to long ago.
With states starting to recognize the validity of blockchain for business and other purposes, that adds more reason to use smart contracts. You have a reasonable expectation that more traditional courts will honor your blockchain transactions if a contract is contested in the “real” world.
Unfortunately, there aren’t a lot of states that explicitly accept blockchain records. While it seems like common sense to apply electronic records laws to blockchain, it might not always shake out that way in the courts. These laws provide something
These laws provide something a little more formal, just in case you want to come after someone in court for a breach of your smart contract.
While it has been a bit slow to gather steam, the reality is that blockchain for business is a trend likely to grow.
Right now, we are caught up in Bitcoin and other cryptocurrencies, debating about what they are worth, and whether or not they can really be replacements for what we consider “real” money.
However, as we get caught up in cryptocurrencies, we are overlooking the other uses for blockchain.
Blockchain for business offers the chance for better contracts and automatic fulfillment that reduces the chances that someone will cheat on their end.
While it might be slow in coming, a groundswell is underway. Blockchain technology continues to become more mainstream, so it makes sense to assume that, at some point, business owners will be ready to use smart contracts to make things run smoother.
What do you think? Do you think smart contracts are the way to do business in the future?