The dream: Let’s have the blockchain and “Smart Contracts” solve all my corporate contract issues.
The reality: Don’t hold your breath.
So what is a “Smart Contract”? It is essentially like a computer program that triggers one or more events or actions based on the occurrence of a condition. In many high dollar transactions today, such as the purchase of real estate, we have middlemen such as escrow agents who cause payments to be made upon the occurrence of a condition: such as filing a change of title on a property once full payment has been received. A “Smart Contract” could theoretically eliminate the need for the escrow agent: upon receiving a certain dollar amount in a particular account, papers are sent to the county government to record the new property deed.
Forms of Smart Contracts already exist today in the financial world: you can place a Stop-Loss order with one’s stockbroker and the stockbroker’s system will automatically trigger the sale of a stock when it hits a certain price. And when a certain amount of a debt is paid, a billing system can lower the interest rate on the remaining balance automatically.
The vast majority of contracts are not susceptible to having machines verify the satisfaction of a key conditions. For example, a machine is unlikely to know when the painter has satisfactorily completed work on your house. And many contractual provisions are not related to a quid pro quo of payment that can be automatically withheld or granted by a machine. Contracts contain many clauses that explain how future issues will be dealt with by the parties, ranging from service outages to where disputes will be resolved - and we are a long way from being able to have machines setup to assess the occurrence of those future condition and trigger the subsequent events.
Even though we don’t have Smart Contracts, the advent of artificial intelligence can help bring your existing contracts closer to a Smart Contract by reading your contracts and automatically deciphering the key triggers. With Contract Wrangler, for example, you can now have machines help you quickly figure out your options when a supplier fails to deliver or an option deadline is imminent.