Case 19: Blockchain Can Execute Smart Contracts

Being familiar with the concept of smart contracts is paramount to understanding how the value web will be used to handle all sorts of value transactions in the future.

A general definition of a smart contract would be a computer program that can automatically execute the terms of a contract. By being self-executing and having property ownership information embedded, they can solve the problems of counterparty trust. Smart
contracts are trustless, autonomous, and self-sufficient. Instead of reinventing contractual relationships, smart contracts are making their formation and performance more efficient, cost-effective, and transparent.

A strong benefit of code-based contracts is the transactional efficiency of being able to automatically generate contracts based on agreed-upon patterns and syntax, which is something unlikely to develop in our current contract drafting and negotiating environment.
Maybe even more beneficial than the efficiencies gained by automation is the fact that code based contracts would be capable of debugging themselves. Progress in artificial intelligence research will soon allow machines to understand more and more complex logic, which will ultimately lead to a system being capable of alerting a drafter to inconsistencies that often go unnoticed by human drafters. The ability to have a machine apply this sort of compliance logic would save certain industries a massive amount of time and money, especially within the financial and securities sectors.

One of the first markets where smart contracts are expected to be put to work are in syndicated loans. This is a $4 trillion market that still runs on faxes, email and excel spread sheets 16. Already in the first half of 2016, banks are expected to start turning paper syndicated loans into smart contracts where the terms and conditions are programmed, then shared to the syndicate of lenders across the distributed ledger. This will improve a process that today takes on average 27 days, down to as quickly as two or three days.