When you hear the term “blockchain,” the first word that jumps to mind is likely “cryptocurrency.” While this association is certainly fair, it glosses over an even more powerful concept, one without which there would be no cryptocurrency—or any other blockchain-powered applications, for that matter: smart contracts.
What Are Smart Contracts?
Put simply, smart contracts are what makes blockchain such a uniquely powerful concept—and they remain largely misunderstood. When we talk about blockchain’s true potential, we’re talking about an unprecedented ability to prove digital certification and copy protection—something that impacts nearly every business on the planet.
Smart contracts are digital programs that execute agreements using if-then logic. Think of the process like an ATM. If someone selects “deposit” and then puts $25 into the machine, that money is magically added to their checking account. The process is automated, removing the need for a bank teller. With smart contracts, lines of code designate certain conditions that trigger actions agreed upon by different parties. This code is then replicated across computers that comprise a blockchain network. Once conditions are met, a contract is executed immediately, and the blockchain is updated with the completed and immutable transaction.
Current Smart Contracts Use Cases
Smart contracts are being increasingly employed to automate and streamline a wide array of business processes, like supply chain management. For the first time, businesses are able to bring together disparate parties onto a single value chain with a truly immutable ledger that proves not only a given event occurred but also the conditions under which it occurred. For instance, supplier A can prove to vendor B that a given shipment was maintained under the requisite conditions—say, a proper temperature range—for the duration of its journey, thanks to constantly logged data.
Human resources provides another compelling use case: Smart contracts can automate paycheck processing and benefits administration, issuing each nearly instantly when conditions are met. Using smart contracts can remove the risk of human error and free employees’ time for other tasks. Across industries such as financial services,media, government and many others, this automated, secure process creates efficiency, increases trust between business partners and decreases costs.
As businesses face growing competition and ever-tighter margins, blockchain technology—and specifically smart contracts—can unlock new value streams and enable businesses to stay competitive. But today, according to my company’s research, only 30% of business leaders have a strong understanding of smart contracts and the value they bring.
It’s this limited understanding that often stands in the way of adoption. As business leaders learn more about all types of smart contracts, greater blockchain technology adoption and greater value will inevitably follow.
Requirements For Greater Adoption
Like other waves of transformative technology—from cloud computing to AI and beyond—blockchain technology comes with a learning curve. For example, many still see “blockchain” and “crypto” as interchangeable terms. But an appetite for education is there. According to my company’s report cited above, almost 90% of surveyed decision-makers said they are looking to learn more about blockchain. And business leaders are particularly curious about smart contracts:
Eighty-seven percent crave a greater understanding.
While continuing to educate the market is the first step toward deriving smart contracts’ full value, there’s another requirement, too. Smart contracts have to become more flexible to meet the needs of businesses.
Historically, smart contracts couldn’t be updated after they were deployed as a blockchain-based application (“dApp”), which has been a major limitation for organizations looking to adopt blockchain technology. Almost every business requires flexibility to meet changing business needs (think: new/evolving customer preferences, bug fixes, new compliance mandates, etc.). It’s why continuous integration and continuous deployment have emerged as software development best practices in any non-blockchain environment. In response to this reality, upgradeable smart contracts offer a best-of-both-worlds appeal: While past transactions remain immutable, future conditions can be changed.
Similarly, along with enabling other software development best practices, another hurdle to smart contract adoption is the fact that many blockchains are written in Solidity, a relatively niche and new programming language. For blockchains to truly appeal to mainstream businesses, they will need to be more compatible with more well-known programming languages, like Java, JavaScript and Rust. Thanks to the recent emergence of the WebAssembly (WASM) standard, that’s steadily becoming a reality. Many newer blockchains are based on WASM, which could expand the pool of developers capable of building dApps.
What’s next?
While blockchain technology is still in its early days in terms of adoption, the tides are clearly shifting—and more and more organizations are showing a willingness to adopt blockchain. Increasingly, some of the largest companies—including 44% of the top 100 public companies—are actively utilizing blockchain technology.
I believe blockchain technology will soon become a crucial tool for nearly every organization, driving new business efficiencies and customer value. Further education, knowledge sharing and community discussion will be critical for business leaders to reap these benefits. To help businesses unlock the value of blockchain technology, early adopters should create and share resources outlining useful applications, especially for smart contracts.
At the same time, business leaders who have not yet adopted blockchain technology should seek out these resources in order to fully understand its value. As blockchain technology continues maturing and gaining traction, the time to learn, adopt and experiment with its capabilities is now.
