Last year, the first major event dedicated exclusively to smart contracts took place at Microsoft’s New York City headquarters. The inaugural Smart Contracts Symposium brought together over 250 of the world’s leading financial institutions, legal experts, and blockchain technologists, who were there to discuss the widespread adoption of smart contracts and their potential use cases for business and beyond.
The event’s attendees are far from the only people aware of the tremendous potential of the technology, which stands on the same public distributed ledger, called Blockchain, that powers the world’s most popular cryptocurrency, Bitcoin.
Smart contracts (which are one of the most highly anticipated applications of the Blockchain) are computer programs that facilitate, verify, or enforce the negotiation or execution of an agreement, describes smart contracts Deloitte. “Smart contracts often emulate the logic of regular contractual clauses. Therefore, many kinds of contractual clauses can be made partially or fully self-executing, self-enforcing, or both.”
In other words, smart contracts provide a way for two parties to facilitate, enforce, and verify a contract without the use of a middleman. A party A could, for example, agree to pay a party B for a service X only after certain contractual conditions are met. A smart contract would be able to verify these conditions without the need of a human and thus save both parties time and money, not to mention that it would also make fraud impossible.
Although smart contracts were first proposed by Nick Szabo in 1996, they have become a hot buzzword only after Vitalik Buterin released Ethereum, a decentralized platform that runs smart contracts. Ethereum enables developers to create markets, store registries of debts or promises, move funds in accordance with instructions given long in the past, and many other things that have not been invented yet, all without a middleman or counterparty risk, as stated on Ethereum’s official website.
The Impact of Smart Contracts on Small Businesses
Small businesses can expect to be impacted by smart contracts both indirectly and directly. And there are many ways to use it in a day to day operation.
Indirect Benefits of Smart Contracts
The French insurance giant AXA is testing a new flight-delay insurance product, Fizzy, for flight-delay insurance. Unlike traditional insurance products, Fizzy stores and processes payouts via smart contracts. Since 2016, vendors, buyers, and agents can use the first global, decentralized real estate smart contract application built on top of the Ethereum protocol, Rex, to experience how real estate contracts of the future may look like.
AXA and Rex illustrate that, soon, everything that requires a business contract could be powered by smart contracts running on the Blockchain technology. Everything from accounts receivable financing to purchase order financing to letters of credit and other things would be handled by a few lines of code running on a global, decentralized computer. Small businesses would no longer have to deal with the army of middlemen, and they could enjoy reduced legal costs and much more time for growing their business.
Direct Benefits of Smart Contacts
Small businesses can already experience many direct benefits of smart contracts as the technology and the infrastructure that enable them already exist and are ready for use.
Automatic fulfillment will likely become the most common application of smart contracts by small businesses. Instead of keeping a list of transactions and manually checking whether the terms of the contract have been fulfilled, a smart contract would get rid of the lengthy verification process and take care of things automatically. Neither party would need to trust the other party because they would only need to trust the smart contract itself.
Automatic fulfillment also has the potential to radically transform the relationship between small businesses and their employees. A contract of employment could be written in a programming language and executed on a distributed platform. Employees would no longer have to wait for employers to give them their weekly paycheck. Instead, a smart contract would automatically pay employees as soon as they would meet the terms of the contract.
The Uniform Commercial Code (UCC) is a set of laws that provide legal rules and regulations governing commercial or business dealings and transactions. Among many other things the UCC also instructs businesses and organizations how to handle record keeping. Some records are required to be destroyed by a certain date, other records are required to be made publicly available, and so on. For a small business, navigating the complex web of laws and be a huge burden, and the consequences of failing to do so are severe.
Smart contracts would make it possible to state all legal rules and regulations as executable routines written in a computer code. Such routines could be available as pre-made blocks of code, either for free or for a fee, and it would be up to individual business owners to use them just as they now use pre-made document templates for legal contracts.
Walmart has recently partnered with IBM and Tsinghua University in Beijing to track the movement of pork in China using the Blockchain technology. What does pork have to do with small businesses and smart contracts? “The Blockchain in question … is designed to provide the retailer with a way to indelibly record a list of transactions indicating how meat has flowed through a commercial network, from producers to processors to distributors to grocers — and finally, to consumers,” writes the Fortune magazine.
When we throw smart contracts into the equation, we are looking at an incredibly robust supply chain management system with granular inventory tracking capabilities and a reduced risk of fraud and theft. A small business would be able to not only have the guarantee that it will receive the supplies they order, but the business would also be able to use a smart contract to enforce a delivery of the supplies in a certain manner.
Small businesses can benefit from smart contracts in many different ways, and we are only beginning to understand just how game-changing the technology really is. While industry leaders are already aware of the benefits, which smart contracts may bring to their businesses (full transparency, saving costs and time, raising trust in a business environment, and many others), most of them prefer to stay aside, due to associated risks and lack of technical expertise. However, the solution is almost there: wholesome, secure, compliant and breezy to use platform with an extremely user-friendly interface, that will allow any business to work with smart contracts and cryptocurrency payments easily with no legal, technical or operational complications and in a cost-efficient manner in the nearest future, in 2018. The platform is called Jincor and it currently operates as a closed beta, but soon first basic functionalities will be available for general public to test.
If you want to learn more about the product browse for additional details here or chat with the team and ask any questions about it in our telegram channel.
How Can Small Businesses Benefit from Smart Contracts? was originally published in Jincor on Medium, where people are continuing the conversation by highlighting and responding to this story.