Contracts are such an ingrained part of everyday life that we don’t notice them a lot of the time.
Basically, a contract is an agreement between two parties that if Party 1 does this thing, then Party 2 does that thing. If I provide you with a computer program or a pair of shoes or a great haircut, then you pay me an agreed-upon amount for it.
Many of today’s contracts could be considered “smart” already. For example, if you have an agreement with your bank that a certain number of dollars comes out of your automatically deposited paycheck and goes into the bank account of your landlord or insurance company, that agreement could be considered “smart,” because it’s set up once and allowed to run on its own, without you, the bank, or the recipient of the funds giving input every time the transaction needs to take place.
True smart contracts, that incorporate blockchain technology, are better in many ways.
Why Blockchain Technology Makes Smart Contracts Better
Trust imbalances occur at many stages of the execution of a transaction. If I buy something from an online auction, I send money and expect to receive a product in return. Most of the time it works fine, but what about when it doesn’t? I sent money and didn’t get my product, but the seller’s records say they never received my money. Which version of the truth is correct?
Blockchain remedies such situations by automatically creating a distributed ledger of discrete transactions that are not owned by one or the other party to a contract. In other words, if I held up my end of the smart contract and sent the money under a smart contract, that independent ledger will say so, and it’s believable because I have no way of altering it. In fact, no one really has a way of fudging that ledger, because discrete transactions are never erased. They may be amended, but the old transaction record is always there.
Benefits of Smart Contracts: Speed and Trust
Smart contracts speed up transaction workflows because there’s no waiting around for intermediaries to confirm that something happened. Sure, ACH transactions are stupendously faster than the old system of waiting for a check to clear, but smart contract transactions made with the aid of blockchain technology take the process to an even faster level of operation.
Furthermore, the existence of a distributed ledger that isn’t owned by any one person makes it virtually impossible to fake numbers and other details. In other words, a transaction (or any other automated workflow, really) can proceed faster because the speed bumps of trust imbalances go away under smart contracts.
Smart Contracts and Automated Workflows
Automated workflows themselves can be considered a basic type of smart contract because of the triggers and “if-then” aspects of many workflows. “If the purchase order is for more than $1,000, then the approval of a department head is required,” for example. Not every automated workflow needs blockchain technology to ensure optimum speed and trust. We’re still humans after all, and we know that if Carlos in Drafting says he’ll deliver the engineering sketch file by noon Tuesday, he’ll deliver, because he always has.
But some automated workflows may benefit tremendously from the incorporation of smart contracts. This is particularly true in B2C companies that want to make transactions faster, more trustworthy, and less laden with overhead.
It can also be used in multi-party contracts to keep workflows on track. Say a plumbing contractor is contracted to begin work on the plumbing system for your new office building as soon as the smart contract indicates that the pipes have been delivered from the pipe manufacturer. Delays simply won’t fly when a smart contract (as backed up by a distributed, unalterable ledger) shows that the materials were delivered on time to the right place.
Workflow automation won’t demand smart contracts in every instance, but as blockchain technology emerges, it’s clear to see how incorporation of smart contracts and blockchain technology will improve transactions of nearly every type.
Smart workflows are nothing new for PerfectApps, which is form and workflow software designed to empower users to create custom forms and workflows that do exactly what they want, complete with triggers, notifications, audit trail creation, and reporting. Interested? We invite you to read through some of our many case studies to see how PerfectApps makes businesses in every industry work smarter.