If you’ve spent any time around technologies like blockchain or IoT, you know the feeling. It’s that moment when the cogs begin spinning in your brain, and you start to fathom the incredible bigness of what’s possible. I had this moment originally with Bitcoin, pouring through Satoshi’s whitepaper like a man possessed, scribbling my notes in a word document on my other screen. However, it was when I read the Ethereum whitepaper that it began to dawn on me — smart contracts are going to be huge.
From the corporate structures handling administration and accounting autonomously, to digital legal systems which govern opt-in relationships between internet entities, the technology has the potential permeate so much. The change will likely be rapid. The innovations will be incredible. And most important — if you can position your business or personal skill-set for the coming revolution, you’ll be sprinting ahead while the majority of your peers are playing catch up.
Of course, much depends on the scalability of blockchain technology itself. But with Generation 3 networks like EOS and Cardano showing incredible promise, there’s increasing confidence that true scale is a matter of when, not if. Once that issue is surmounted, smart contracts, which are just a fancy word for programs written on a blockchain, have the potential to meld money, information and business logic in a way not possible on any other platform. They promise open, consistent, auditable and near-frictionless execution. Here are four simple ways smart contracts, running on suitably-scaled blockchains, could make a big difference.
Most items may soon have a basic computer chip built-in. From streetlights to shoes, everyday items will one-day have at least a modicum of processing power. This will go hand-in-hand with an ability to connect to the internet, (commonly referred to as the growing Internet of Things — IoT) or eventually, a decentralised mesh network.
Smart homes make some rudimentary use of this technology already, allowing you to control your lightbulbs and remotely lock your doors. However, they’re handicapped by their reliance on a device (a hub) and by operating on centralised technology (Google, Amazon) that won’t talk to anything else.
Blockchain technology doesn’t have these issues. It’s decentralised, in that it distributes itself over many devices, and it’s platform agnostic — meaning that as long as your device can send a message, it could be sent to a blockchain network. Furthermore, the decentralised and open nature of blockchain technology means that you do away with the need to trust the platform you’re executing code on, because the rules are set in stone and people are incentivised the keep the network secure.
It’s also relatively easy to program devices to interact with a blockchain. Smart contracts at their core are simply programs, reacting to messages from and sending messages to other code, based on a programmed set of rules. The issue to this point has been inter-operability, as communication between blockchain networks is still a work-in-progress.
The potential is evident however, and will only increase as things progress.
Within any business there are a number of tedious tasks that are both repetitive and require minimal engagement. Smart contracts will soon allow automation of many functions that fit this description. Why? Because code can perform repetitious tasks with efficiency and perfection. Every time. This means no double handling and no human error — huge time wasters in the day-to-day of any company.
If you’re thinking that this isn’t a particularly new concept, you’d be right. Many programs do this now, and create the modern efficiencies we’ve come to expect in our workplaces. However, most of these improvements are both internal and centralised. They typically only occur on software made by one company, and run on a central server.
By creating a platform that is trustworthy, consistent and decentralised, the blockchain provides the perfect method for businesses to take their automation to the next level. It levels the playing field, and ensures everyone knows the rules they’re working by.
Decentralisation means no single point of failure, but instead a network that has 100% uptime. Any business function could therefore be efficiently and securely managed via smart contracts. From the coordination of prices between two stores in a small franchise, to managing payroll between company offices on four continents, smart contracts on the blockchain will create a reliable and low-cost solution to the many problems of our current infrastructure.
Most modern businesses rely on a network of ‘middle men’ — companies or people that perform certain functions and charge fees for the privilege. It’s these middle men that are responsible for much of the ‘built-in’ costs in our consumer society today. From fresh produce to the sale of music, middle men drive prices up and perform arguably redundant functions. Smart contracts will allow code to replace middle men, or completely remove the need for middle men altogether.
Let’s look at a specific example of a musician. Currently, most musicians must sell their music (or arrange deals with online platforms like Spotify and iTunes) through a record company, who is often prepared to pay for the costs of producing their album, handing their advertising and…making sure their extensive list of corporate shareholders are significantly remunerated.
One of the most notorious issues with this arrangement is that the artist has little to no visibility into the financial side of their music. They may receive some rudimentary statistics from the company, but there’s no way for them to verify that data. Smart contracts, on the other hand, allow parties to agree on terms beforehand, and let the code do the enforcement. Our fictional artist could require that a ‘contract account’ be set up for all royalty and sale money to come into from the various streaming and music sale companies. That contract would then split any received payment automatically, sending the agreed share to each party’s blockchain account. Both parties can audit the transactions, and both parties trust the code to pay their agreed sum. Information increases, the need to trust decreases – everyone is happy (except maybe the shareholders).
In short, smart contract technology will lower cost, reduce waste and re-establish the direct relationship between manufacturer and customer.
The necessity of trust has always been the sticking point in all business relationships. Companies expend tens of thousands of dollars accounting for every forseeable eventuality in gargantuan contracts, and still find themselves dealing with contractual partners who do not fulfil their obligations.
Smart contracts are derived from math and code, and don’t rely on human discretion. Their conditions are absolute; and crafted properly, they allow for a non-discretionary execution at the moment a condition is satisfied.
Are you entitled to a percentage of total business revenue as part of developing an ad campaign? A requirement of the arrangement could be that the money from all conversions are routed through a smart contract account, and the agreed percentage automatically transferred to your account. Are you drafting a will? Automatic payments could be made from your account once a trusted third-party certifies your death.
These relatively simple arrangements can be extrapolated to almost any business relationship imaginable. Plain English contracts (or, passive agreements) will be increasingly substituted for code-based contracts (which, when done correctly, can be regarded as active agreements). Businesses reluctant to agree to smart-contract terms will increasingly be shunned in the marketplace, as trustless blockchain methods become the preferred avenue for all bona-fide contractual relationships.
In short, smart contracts on distributed blockchains will create an open environment where both parties can feel confident they are contracting on equal footing. This will foster a confidence never before seen in the business world, reducing unnecessary cost in risk mitigation, and increasing available capital for the most important part — actually running the business.
The Future is Bright
You’ve probably thought of ways smart contract technology can impact your situation just reading through this. That’s what blockchain technology does. It gets inside your head and unlocks possibilities.
Done correctly (and where it makes sense), smart contracts can eliminate double handling, cut out middle men, and create whole new areas of interactivity which will save money across the board . But it will come at a cost. Anyone who can’t adapt, be they employer, employee or contractor, will be left behind.
In contrast, the businesses and individuals who adopt smart contract technology early and innovate within the space will have an enormous advantage over their competitors. They’ll be the ones who harness the technology and pivot to whole new levels of success.
Taking all of this into account, only one question remains. Are you prepared for the coming smart contract revolution?
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