A standard contract outlines the terms and conditions of the contractual relationship, whereas a smart contract not only defines the rules and penalties of the agreement, but also enforces the terms and conditions. A common smart contract analogy involves comparing its technology to a vending machine. Rather than going to an intermediary, giving them money and waiting for your product, you put money in the vending machine – or into the blockchain network – and ownership of the product is automatically associated with your account on that blockchain.
2. Accuracy. In addition to removing intentional manipulation, the automated execution of smart contracts removes the impact of possible human error when manually filling out and processing loads of forms and other documentation.
3. Trust. The encrypted nature of blockchain technology ensures the contract and supporting documentation are encrypted and available to all relevant parties on the shared ledger. As a result, losing or misplacing documentation is impossible.
4. Resiliency. If you have ever lost your wallet, panic typically ensues. You must locate documents that prove your identity and residency to replace your government-issued ID. With your replacement ID, you can prove ownership of, or entitlement to, your assets. Smart contracts that associate asset ownership on a blockchain provide the resiliency inherent to distributed ledger systems.
5. Speed. The manual processing of traditional contracts requires large amounts of time, paperwork and back-and-forth communications to complete, not to mention the challenge of conducting business within business hours, although operations may span multiple time zones. Contractual tasks automated by the computer code of smart contracts reduce the time required to complete the contractual agreements.
Beyond the obvious smart contract challenges, including errors in the code that could result in unintended consequences and vulnerabilities exploited by nefarious parties, coding every possible outcome of the business transaction could be an almost impossible undertaking because some results may be unknown. Similarly, some traditional contracts are designed with intentional flexibility, allowing for human interaction or judgment during execution of the contractual agreement. Flexibility is difficult to automate, so these contracts may be poor candidates for smart contracts.
PwC’s Global Blockchain Survey 2018 shows that 84 percent of responding companies started their blockchain journey; 57 percent have projects in development or in production. While financial services is the frontrunning industry in blockchain use cases, advances are being made in manufacturing, supply chain and healthcare.