Imagine if the paper on which your business’ contracts are written could somehow come to life and automatically send payments to your collectors—and receive payments from your debtors—at the appropriate times, as different provisions of said contract are triggered.
That’s more or less how electronic smart contracts, self-enforcing pieces of computer code set up to execute on the blockchain, more efficiently streamline certain processes. While sometimes legally enforceable, they have their drawbacks and will probably never completely replace traditional legal contracts.
Are they something your business should consider?
As always, it depends on your industry, business model and potential use cases. It’s important to keep in mind before executing on them that once put in place, they’re more or less locked via their rigid code, and thus hard to bypass or unwind. And some that aren’t written properly in the first place can self-execute despite the fact that the intended conditions haven’t come to pass—a concern not typically associated with traditional contracts.
Among the industries and use cases for smart contracts are:
- Use-case examples here could include automation of payroll administration, contractor payments and other tedious back-end processes; or methods to hold logistics companies to account if suppliers arrive late by triggering a penalty, for example.
- Real Estate: Among the many potential smart contract applications in this industry would be automatic transferal of payments to a mortgage company, creating a provable record thereof, as well as other mortgage-related functions like decentralized ledgers for recording credit scores and transfers of real property along with any associated encumbrances, along with the ability to create a smart contract based on the details therein.
- Financial Services: Use cases here range from peer-to-peer money transfers, to real-time payments with minimal fees, to reducing the risk of fraudulent insurance claim compensation.
- Healthcare and Pharma: The inherently encrypted nature of blockchain helps healthcare organizations protect electronic health information as required by laws like the Health Insurance Portability and Accountability Act (HIPAA). This means smart contracts can easily and securely share hospitals’ and clinics’ data with insurance providers; while, at the same time, inventors of new pharmaceuticals or medical technology products can more easily raise funds from a broader base of global investors.
- Human Resources – People in this departmental function across all types of industries could deploy smart contracts during the hiring process, automatically putting benefits packages into place at the start of employment, or once a probationary period ends. HR professionals also could automate tasks like payroll processing, saving time, money, and the ancient pitfall of simple human error.
We have seen a number of instances where a smart contract can help both sides. We utilize something similar with our Corporate Maintenance Plan™ which helps our corporate and LLC clients maintain their legal status with the states in which they operate. As we learn more about the practical uses of smart contracts, we should find that they are one more tool for businesses to stay on top of their obligations.