By now, you’ve no doubt heard about the meteoritic rise (and fall) of cryptocurrencies like Bitcoin. If you’re following the crypto market closely, you’ve probably also heard about blockchain, the underlying tech behind cryptocurrencies. But cryptocurrencies are just one application of blockchain technologies, and we’re just now beginning to think about the myriad applications blockchain has in everyday life. One application which is of great interest to us at LeasePilot is contract security and enforcement, the product of which is known as a ‘Smart Contract’.
So what is a Smart Contract? It starts with the Blockchain, which is a technology of continuously growing records, enabling verification of transactions that are trackable and irreversible. The blockchain is capable of incorporating computerized sets of rules and mechanisms which are collectively referred to as a Smart Contract. Smart contracts are, in essence, computer programs that automate the enforcement of terms. Traditional Contracts, on the other hand, are sets of agreed-upon terms which are enforceable by law and are described in a natural, human language.
Will Smart Contracts replace Traditional Contracts? I’m inclined to say that they won’t. Not entirely, anyway. A Smart Contract works well when terms and conditions are straightforward, objective, and quantifiable. But when it comes to subjective T’s and C’s, the binary nature of a Smart Contract falls short. It’s also important to point out that ultimately, contracts represent an agreement between humans, not machines. Since most of us mortals aren’t capable of easily abstracting the kind of mathematical, deterministic language used by Smart Contracts, the Traditional contract is here to stay.
So what, if anything, connects the two? And what are some potential implementations of combining the two approaches? There are in fact multiple clear similarities between the two. At a high level, they both describe a series of situations and responses. One possible application would be using a Traditional Contract during the negotiation phase that, once signed, would be translated into a Smart Contract which would handle validation and enforcement.
But is this even possible? Will standard agreements and contracts self-execute sometime in the future? The feasibility of bridging the gap still remains to be proven. We’re experimenting with a few exciting technologies to see if that gap can in fact be bridged. Our first step is exploring ways to build standard agreements and contracts from structured data as a way to facilitate a safe transition from the Traditional Contract to a rule-based computer program.