Blockchain and smart contracts are the present and the future when it comes to big ideas in contract lifecycle management. They save time, create a Posner-inspired world of beautiful economic efficiencies, and reduce legal spend and internal cycle time, while ensuring absolute transparency and control.
Blockchain and smart contracts will also solve climate change, lower your cholesterol and make the respective fans of Yankees and Red Sox friends again (or Manchester United and Manchester City, for our British readers). So are you missing out? Of course you are, and didn’t you know that everybody’s talking about it on their morning coffee break?
OK – so maybe not all of it is true, but some of it is – especially the parts about the future and creating efficiencies. And just so that we’re all on the same page, let me give you an over-simplified, but quick, overview of what blockchain and smart contracting are in today’s lingo. Without going into Bitcoin and cryptocurrency, blockchain is the decentralized sharing of simple data or information in a secure manner without having a central authority or intermediary to perform the information sharing function.
Imagine sitting on a train and everyone telling the person next to them what they had for breakfast. No one person (or link) knows what everyone had for breakfast, but collectively the knowledge of the whole train carriage knows everything about the various breakfasts that were eaten on that particular morning. Put into more practical uses, banks and financial institutions use this all the time to make a shared ledger of time-stamped, encoded transactions (or blocks) that are shared across a network of institutions.
Smart contracts explained
If you take these blocks and add some coding to them in simple logic such as “if X happens, then do Y,” you arrive at the basics of the “smart contract.” Again, put in more practical terms, organizations will code a transaction such as “if the price of gold hits X per ounce, then sell the gold.” This then hits the next step in the chain which takes that information and performs another action, such as “if the gold is delivered then invoice the client.” And so it goes on. Each of these steps is a small transaction that could have been a contract to buy or sell, invoice or receive goods. And each transaction happens without having to pay a lawyer to draft the contract.
What everyone is getting excited about is that if a smart contract works (and they do), and entities can effectively perform transactions in real time without extra cycles or reviews, and if these transactions are just logic based, couldn’t we just push the limits of the “coding” to get to more sophisticated contracting? Instead of just simple logic of “if X then Y,” couldn’t we code in more exciting things such as “if vendor offers price X, then we offer price Y”? Then there would be coding back and forth until the contract is resolved without negotiation time, people leaving the room to huddle and discuss, hiring advisors or even lawyers and consultants?
This works today on simple pricing or simple binary issues, but couldn’t this also work on even more complicated issues such as “if vendor offers this level of indemnity, then respond with fallback clause X”? With legal process outsourcers and other groups creating rulebooks for markups and redlines for years, couldn’t you just take these rulebooks and make an automated blockchain of smart contracting?
Are you ready for automated smart contracting?
Putting that last sentence of unadulterated buzzword hashtag bait aside for just one minute, we’re not there yet. But we could be there before we know it – although a fully automated version of contracting complex matters at this level would only work if everyone is dancing to the same music. We still need lawyers, commercial and procurement professionals – for now. But technology moves fast and people like saving money.
This is why I like to say that people aren’t missing out on blockchain or smart contracting – yet.