Smart contracts are evolving beyond blockchain technology and play a role in various industries.
Blockchain technology is nothing short of a generational phenomenon. Referred to as ‘internet 3.0’, the technology is about as complex to the average user as the internet was when it was introduced and includes various components, including smart contracts.
While blockchain is commonly tagged as confusing, one of its key tenets is to deliver transparency. Following this mandate, alongside functions for immutably validating transactions, blockchain technology is disrupting many real world industries and processes in everything from crowdfunding, insurance, banking, real estate, charities, government, healthcare, retail, entertainment and countless others.
“Blockchain is going to penetrate every level of society. We are looking at the emergence of a peer-to-peer economy where everyone can transact with one another using blockchain as a medium of trust,” Jonathan Baha’i, founder of eXeBlock Technology (CSE:XBLK), told INN. “We are seeing the emergence of a new world that is demanding the ability for people to transact in a safe way without the technology hangups that permeate current technologies.”
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One such peer-to-peer adaptation of blockchain technology is smart contracts. An essential element of a decentralized blockchain, smart contracts allow for trusted, transparent transactions between anonymous parties without the need for a central authority. While smart contracts were originally designed for cryptocurrency transactions, innovators in the space are adapting them to play a role across a wide variety of industries.
Smart contracts are self-executing contracts that host the terms between buyer and seller carefully written into the lines of code. The code and the agreements contained in the contract exist across a distributed, decentralized blockchain network. Within this system, trusted transactions are carried out without the need for a central authority, legal system or external enforcement mechanism, and neither party has more control than the other.
Typically, contracts face a potential for disputes stemming from enforceability, transparency and more. Ultimately, there lies no universal set of rules that apply to the enforcement or clauses of current contractual agreements. In addition to this, traditional contracts require intermediaries to write the terms, and enforce and process the contract. As an automated process, a smart contract omits these issues as the system itself executes the terms of the agreement and uses coded programs to enforce the clauses of a contract. It is also enabled with cryptography to ensure non-tampering and fraud protection, keeping associated information secure.
This innovative form of smart technology is beginning to be used to address these problems in real estate transactions, banking and commerce, fundraising and supply chain management.
Real world applications for smart contracts include financial processes such as automated payments via direct debit systems, identity verification, mortgage and loan document signing to name a few.
Banks are required to verify and identify their clients in order to comply with Anti-Money Laundering laws and regulations. This process, called “Know Your Customer,” is often costly and inefficient. Striving to make this process more efficient, banks are looking to implement smart contracts to automatically check and verify customer information against approved central records. This will greatly reduce the cost of customer acquisition and decrease the time it takes for a customer to open a new account, or process a mortgage or loan document.
In December 2017, Swiss Bank UBS, in cooperation with Barclays, Credit Suisse, KBC, SIX, and Thomson Reuters, kickstarted a pilot project that seeks to use smart contracts to improve quality of reference data through anonymous reconciliation. The financial system as we know it is on the verge of a complete overhaul which will improve redundant and inefficient systems.
Smart contracts offer similar solutions for the real estate industry; in a property acquisition the primary smart contract could prompt the digital transfer of the deed to a home once the required funds are deposited in the seller’s account. Meanwhile, other associated smart contracts would work in the background performing anti-fraud checks, confirmations or required verifications. One company already using smart contracts this way is Propy, the global leader in property transactions secured through blockchain. The company had their first real estate transaction in September 2017 when a purchase of an apartment in the Ukraine was made for $60,000.
Supply chain and logistics
It is estimated that cargo theft causes an annual loss of approximately US$30 billion per year. As a result, cargo theft can cost consumers up to 20 percent more for their goods.
According to UPS (NYSE:UPS) Director of Enterprise Architecture and Innovation, Linda Weakland, “It (blockchain) has multiple applications in the logistics industry, especially related to supply chains, insurance, payments, audits and customs brokerage. The technology has the potential to increase transparency and efficiency among shippers, carriers, brokers, consumers, vendors and other supply chain stakeholders.” The average shipment in the present day from East Africa to Europe could require approvals from as many as 30 different parties and by the time it reaches its destination, up to 200 different interactions might have taken place.
Internet of Things devices, such as a smart phone with active IP address and bar-code scanning ability can write location data straight to a smart contract, allowing real-time visibility of the entire supply chain and validating the transaction of a product. A smart contract would contain all of the shipment tracking information documented in its agreement, from required payments, signatures, approvals, and any other terms written into the agreement, as it moves through the chain, it can automatically be approved for the next step or rescinded if terms are not met as per the contract.
Seeing the opportunity in this approach, Maersk Line, the world’s largest container-shipping company, has already teamed up with IBM to introduce smart contracts to track its cargo shipments. This could reduce the enormous amount of paperwork associated with each shipment and counter the potential for monetary losses as a result of archaic tracking systems.
Smart contract technology has the potential to disrupt a broad range of economic and social relationships as well. Charitable or fundraising organizations are one area that could benefit from improved efficiency, transparency and accountability. The ability to raise funds on a larger scale and disburse those funds directly to the beneficiary means more successful social aid initiatives.
eXeBlock has created one decentralized application (DApp) that connects users with fund-raising organizations and charities around the world-organizations, teams and charities can expand the reach of the traditional 50/50 draw to engage with a wider audience. Draws can be scheduled and notifications to followers automatically sent out while 50/50 Labs does the rest. Users download the app, and by buying a ticket enter into an agreement with the terms stating that a winning ticket is chosen by a random number generator with the proceeds split between the winner and the sponsor. The smart contract then enables the payment to the winner(s), enforcing the agreement the player entered when buying the ticket.
The variety of smart contracts emerging on the scene is growing and will continue to play a role in how business and agreements are conducted. They benefit most industries by introducing automated enforcement of agreement terms and reducing the potential for error, saving companies both time and money.
Whether businesses are seeking to strengthen their operations, or build smart contract capabilities of their own, the opportunity for the industry is vast. For investors, it is important to keep an eye on companies that are already taking a stance in the development and use of smart contracts, thus driving efficiencies, transparency and automation in multiple industries.
This article was originally published by the Investing News Network in July 2018.