As the infrastructure surrounding cryptocurrencies develops, smart contracts could become an increasingly common way of implementing transactions.
Let’s begin with an example. Assume that your company has an agreement with a website that it will publish your advertisement on its site and you will pay them $100 for every 100,000 impressions.
The smart contract would allow you to program the terms of the agreement in ways that can be easily verified (such as if/then conditional statements) into code on the blockchain. Once your advertisement’s impressions are reached –as reported by some external and integrated tracking service– then the $100 is released to the website publisher from an escrow account.
Ok, but why?
One of the best things about smart contracts is that, because of the decentralized blockchain system there is no need to pay middlemen (cough, lawyers) saving your organization time and money. As a whole, smart contracts have been rated faster, cheaper, and more secure than traditional systems.
Smart contracts not only define the rules and penalties around an agreement in the same way that a traditional contract does, but they also automatically enforce those obligations.
Great, what am I missing?
Smart contracts work great in some situations… but are not so great in others.
Smart contracts are ideal for data-rich and objective transactions. For example, a freight company that gets paid on the number of banana containers that are delivered to Florida from South America. This works well because the number of crates, crates per container, temperature inside the crates, bananas per crate, and departure/arrival times are all potentially quantifiable. The various data points allows for appropriate code to be entered and verified on the blockchain.
An example that works less well is if a company was paid for the number of windows they washed in a day. Smart contracts don’t work as well in this example because it’s difficult for the code to identify a clean window from a dirty one. Subjective terms (such as “clean” and “dirty”) without quantifiable parameters don’t lend themselves to successful smart contract implementation.
How do I get started?
If you have an interest in implementing contracts into your company’s practices, the first step is to have guidance from a consultant who is educated in the nuances of cryptocurrencies, blockchain, and smart contract implementation. For such a consultant, you can contact Treehouse Technology Group.