Another revolutionary enablement as a result of the Blockchain technology set is that we now have smartcontracts to execute various things based on rules set in the contract. As usual this is a post for the non-technical users on the platform.

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What is a smart contract?

A smart contract definition according to Wikipedia.com

Smart contracts are computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract, or that make a contractual clause unnecessary. Smart contracts usually also have a user interface and often emulate the logic of contractual clauses. Proponents of smart contracts claim that many kinds of contractual clauses may thus be made partially or fully self-executing, self-enforcing, or both. Smart contracts aim to provide security superior to traditional contract law and to reduce other transaction costs associated with contracting.

What is smart contracts used for?

Let's first do a recap of what a blockchain is good for. A blockchain is good where you want a distributed database, to interact with parties which you do not know or need to trust, as the blockchain enables a trustless environment in it's fundamental state. With other words we do not need any central authority to enforce trust between parties. For example, when we transfer funds on a blockchain, it is a very basic transaction on the ledger. Minus on the one side and plus on the other side.

For me the easiest way to explain smart contracts is that the above minus and plus transaction in the financial transaction can now be executed without human interference, with other words the process is automated by executing lines of code.

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Let's use the music industry as an example:

Johnny writes the lyrics for a song, for William. They formulate a contract, without any middle man or records company in the middle. The contract states that should William record and sell the song, William will pay 10% of each sale to Johnny. William records the song at ABC studio's, where he formulates a contract with the studio to pay the studio 40% of all sales to the studio.

William now uploads a song to a Blockchain based music distribution network, which also takes 10% of all music sales.

Here comes Jacor, and buys and downloads the song for $1. The smart contract in the back end will automatically excecute as soon as the sale happens and distribute the revenue generated immediately to each of the participants wallets accordingly. No human intervention required whatsoever. Johnny receives 10 cents in his wallet, William receives 40 cents, Studio ABC will receive 40 cents and the distribution network receives 10 cents each time the song is sold.

There are many benefits to this, including taking out the middle man, the record label, which is currently screwing over everybody in the value chain, by taking around 75% of all funds raised when selling the music, as they need to market the new music etc. Sure we still need to market the music, but why not bring ion a marketing organisation with an existing customer base, and use the attention economy and hyper targeting to market the new music directly to people you know who will be interested to purchase the music?

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Smart contracts in a free society

I have written many articles on the Free Society. One of the aspects in a free society is that the members of the society will live by certain rules, which is decided on by the community. These rules still need to be enforced, and why not automate those rules that can be automated. Sure not all rules can be automated, but some definitely can.

Lets take tax for example. The community in a free society will still have certain basic needs which will need to be addressed by everybody contributing, to a community "pot of money". Our problem today is that it is very difficult to manage the spend on tax as a result of corrupt politicians and government workers or civil servants.

If we oversimplify, what if one of the rules is that x percent of all income generated within the society, will be deducted and added to the community tax wallet. The money are distributed to satisfy the financial requirement to fix a water leak for example. When the appointed company fixes the waterleak, a picture is uploaded and software recognition is used to compare the before and after, and a smart contract is executed at the point, from where the money will flow to the contracting companies wallet. Yes, this is still far from being reality, but my question is why will this not be possible after a few years?

Straight forward example of where a smart contract can work today.

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We all need to pay municipal levies, water and electricity etc. If the municipality are blockchain enabled and we have smart meters, smart contracts can execute these transactions seamlessly. Again, the problem here is not the technology to enable these transaction, it is the lack of user adoption of these technologies. As everything this will change in the coming years, when business and government evolves, and get to the point where these technologies are adopted. This will happen, the question is just when.

Smart Contracts, will enable many type of auto transactions, which will only be executed based on when the rules are met which will satisfy the requirement.

Happy Steeming

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