Since ages, two parties making a deal has been a most common occurrence across the world. Whenever it comes to deal, an agreement comes into picture. Ergo, contract writing has served as a legally binding instrument throughout the legal history with one or the other kind of evolution. The oldest contracts were found to exist in Mesopotamia of 2250 BC. On this account, we’re going to have to deal with contract management for nothing less than forever.
This article particularly sheds light on futuristic contract management powered by Blockchain! So put your reading glasses on and read ahead.
Smart contracts in a nutshell
Simply put, Smart Contracts are terms and conditions coded to form a computer program that directly forms an agreed deal between two parties. They facilitate peer to peer communication while exchanging valuables such as property, money or financial derivatives in an ultimately transparent manner.
When you take service of a notary or lawyer, you explain them the terms and condition and wait till they process it and generate a contract copy for you. On the other hand, in case of smart contracts; you feed conditions in a program, transfer the valuables and add the other party who is obligated to fulfil them. When the party honours the conditions, the contract is executed by itself and valuables are transferred to the party. If the party fails to honour the obligations, the contract voids and the valuables are refunded to you.
Blockchain for Smart Contracts
Built using the idea of decentralized distributed ledger as foundation, blockchain has come a long way to serve number of industries in a versatile fashion. Distributed ledger can simply be counted as a ledger everyone, who is part of the chain, has access to.
Under blockchain network, same copy of virtual contract is available to all participants. For any change being made in the contract contents, all parties are alerted. Furthermore, a suggested change required consent of all parties. Thus, having eliminated all the possibilities of manipulation, the transaction becomes fairer.
Technically, being decentralized doesn’t mean blockchain has to work publicly all the time. Blockchain technology further slices up in terms of data privacy. In contrast to public blockchain, there exists private blockchain and a hybrid version called consortium blockchain. Private blockchain allows a single entity to operate, whereas consortium has a group administering the blockchain.
Given the fact that there are limited nodes in private and consortium blockchains, they are significantly faster and more secure as compared to public one. In essence, these two are highly sought mechanisms for the purpose of managing contracts.
An awesome bunch of advantages
Having known how it works, you must already know the why people are going frenzy over blockchain. Essentially, the bunch of awesome perks associated with blockchain technology makes it super attractive in variety of domains including BFSI, Retail, Legal etc. Listed here are some of the many benefits smart contracts deliver with Blockchain as its backbone. Have a look!
- Autonomy. You make the agreement and system executes it. You do it all by yourself without the need of a third party agents.
- Encrypted. Even though they are stored on a shared ledger, the contracts remain highly secured.
- Restricted access. Only permitted parties have access to contract.
- No middlemen, that means you save a big deal in cost and communication.
- Super fast as compared to traditional paper based contract management mechanisms in terms of execution.
- They are immutable and time-stamped.
- They are amazingly accurate without exhibiting any human error.
- Always backed up. No risk of data corruption or loss.
All in all, these smart contracts leave no space for any confusion in contract. The outcome is very specific leading to a conflict-free transaction.
The path ahead
Although the set of advantages and plus points call for a title of ‘perfect contract management tool’ for smart contract, there exist other side of the coin with challenges that hinders the public-wide adoption of blockchain based contracts. As the smart contracts are digital, they have to deal with all the discrepancies related to programming. A bug in the program, or a mistake in code. Well, you might miss it but the contract would execute anyhow. Besides, they might even react to unreliable inputs and unexpected situations. Till date, it is validly debatable how a smart contract can seek a court to intervene for justice.
The contract might contain trade secrets or competitive strategies. Hence, the confidentiality and privacy still remain a serious concern. Besides, the legal regulation of such contract is still a headache. How long do you think the government would take to regulate them? Poker face.
Summarily, smart contracts have vast scope of improvement and advancement to become widely accepted.
Domains smitten by the disruptive power of Blockchain
No matter what, blockchain is bound to disrupt the law industry this way or the other. Apart from contract management and verification, BFSI is experiencing some interesting disruptions in for accountants in auditing and credit analysis as well. In addition, blockchain can make a good show in Risk assessment too. In essence, the industry is going towards implementing a combination of paper and virtual contracts that complement each other.
In addition to BFSI, Blockchain is set to disrupt cyber security, healthcare, energy sector, retail and real estate, crowdfunding and much more.
Bringing it all together
The future is digital for sure. Just to add, it’ll be more transparent, fair, secure and high performing.
The future of contract management belongs to blockchain based tools- This does not sound overrated anymore, does it now? Well, the future is definitely looking up to automate entire contracting process. For now, we do need lawyers, consultants and legal experts. But, the world is changing at incredibly fast pace. So, always be prepared for a massive change, revolution is blowing in the wind!