Closely tied to the concept of digital currencies, such as Ethereum and Ripple, smart contracts are so much more than a cryptocurrency investor’s toolkit. Increasingly, businesses are engaging the technology to close contract deals more efficiently and without the need to send hard copies of documents, among other benefits.
But what is a smart contract, and how does its functionality support contemporary business? A smart contract is a digitized version of an agreement that can undertake, execute, and enforce contractual terms between two or more parties. It’s made using blockchain technology, which safely encodes the contract’s information, making it immutable after the deal has been agreed upon.
In 2019, with business continuing to become increasingly globalized, smart contracts are proving to be one of the more innovative solutions to enact international business deals successfully. This is based on three conquering principles relevant to today’s business arena:
- Autonomy—generally, business agreements between two parties require a third party to ensure the deal is adequately fulfilled. For example, in terms of financial exchange, a bank acts as an intermediary allowing finances to be passed from one party to the other. In terms of resource transfer, a third-party verifier may be required too. Here, smart contracts eliminate the need for such a body, allowing contracts to be automatically fulfilled.
- Trust and security—due to their uneditable nature and usage of a blockchain-based digital ledger noting all transactions, smart contracts are seen to be secure. Data entered into them is visible to the parties involved, and sometimes external parties depending on the type of blockchain used, public or private; however, it is not hackable or able to be edited after the deal has been entered into. Additionally, its trustless nature means participants don’t have to rely on the other party to fulfill the deal as it is executed automatically based on the terms and conditions.
- Speed and efficiency—deals are typically closed through negotiations, document creation, signing, printing, posting, and confirming; all of these are manual and time-consuming processes. In an increasingly digital world, this approach is becoming less convenient for companies who value time and speed, as well as efficiency. With smart contracts, deals can be instigated with various parties and fulfilled automatically without hard-copy headaches.
Business seeking to engage smart contracts often additionally consider the cost-effectiveness of such systems to be a primary motivational element in utilizing them for their needs. With smart contracts, costs are reduced from the lack of need for intermediaries, a decrease in some formal bureaucratic processes, and direct contract enforcement.
How Enterprises Use Smart Contracts Today
On the whole, businesses are becoming more and more interested in the potential of blockchain technology. However, some are hesitant to use it to its full potential, for example, by relying solely on smart contracts.
Those choosing to employ the solution are faced with the challenge of designing a network from scratch or tailoring a ready-made blockchain platform, which can prove a daunting task, especially as this is still such a new technology.
For this reason, many companies engage the help of blockchain consultants who are well-equipped to analyze which solution is best suited and weigh up the risks and benefits for each particular project.
Below, are some of the most recent and interesting use cases on the market.
Microsoft’s Blockchain Development Kit
Microsoft’s recent turnaround on the usage of open-source software, from being a critical opponent to championing the movement, has formed some of the company’s business decisions in recent years.
Not so long ago, Microsoft launched its Ethereum-based blockchain development kit, which allows companies to create their own smart contracts using its technology. Known as the Azure Blockchain Services, users can form, manage, and govern individual blockchain networks. For companies using the kit, this presents the potential to engage a new technology in an efficient way, with a level of reliability from the Microsoft name.
In general, such a massive giant backing the technology is an encouraging step in its future development as a tool accessible to more and more businesses.
IBM-Backed Blockchain as a Service, and Other Platforms
A competitor to the Ethereum network, Hyperledger utilizes the accessible Linux platform to make its blockchain-as-a-service solution available for companies worldwide. The platform allows enterprises to develop their own solutions and adapt the blockchain software to meet their needs.
Among other top runners this year, there are Ripple’s smart contract platform known as Codius, an open-source hosting protocol that helps websites monetize their content in new ways, and EOS, one of Ethereum’s most well-known competitors and effective alternative.
A Future Outlook for Smart Contracts
Currently, blockchain and smart contracts are at an exciting point in their development, with solutions being created and tested almost every day. Although businesses may be concerned about the risk of adapting such rapidly developing technologies, their potential should not be ignored.
These are some of the solutions to current adoption challenges, which we can expect to see moving forward in 2020:
- More testing and better efficiency. More innovative testing methods for smart contracts can help them become more efficient and workable.
- More use cases. From cryptocurrency to employment contracts to voting, smart contracts will find increased use in 2020 and beyond. As more businesses are adopting them, it will become ever clearer just what the limits of the technology are.
While the “revolutionary” tag is still firmly attached to blockchain, in 2020 we will start to move from hype into reality, and the sustainability of smart contracts will become more apparent. For businesses hoping to remain on the cusp of efficiency and forward-thinking, smart contracts represent an unmissable opportunity, even if some caution should be exercised and measures taken to reduce risks.
