Chamber of Digital Commerce Releases Smart Contracts White Paper
The Smart Contracts Alliance of the Chamber of Digital Commerce hosted a Smart Contracts Symposium at the Microsoft Technology Center in Times Square, New York, on December 5, 2016. During that event, they released a comprehensive white paper titled “Smart Contracts: 12 Use Cases for Business & Beyond,” which explained smart contracts and how they work, and explored 12 specific use cases in various industries. The paper also examined legal and regulatory issues surrounding the technology.
Nick Szabo, who was the keynote speaker at the Symposium, wrote the foreword for the white paper. In 1994, he developed the concept of smart contracts, describing them as “a set of promises, specified in digital form, including protocols within which the parties perform on these promises.” Basically, you make a contract “smart” by writing it in self-executing computer code, which only takes action once a certain set of programmed conditions are met.
The technological ecosystem has significantly changed since the mid-90s, and the possibility of a wide implementation of smart contracts in everyday transactions is now more likely than ever thanks to Ethereum and blockchain technology. Szabo specifically believes that “blockchain technology appears very much to be the jet fuel necessary for smart contracts to become commonplace in business transactions and beyond.” During the Symposium, Jason Brett, Director of Operations at the Chamber of Digital Commerce, stated:
“Smart contracts will bring clarity, efficiency and predictability to the way we conduct business. On behalf of the Smart Contracts Alliance, I am pleased to present this paper to the business and policy communities, and would like to thank all of our members and contributors for their collaborative and valuable contributions to this white paper.”
After consulting with dozens of industry experts, the Smart Contracts Alliance identified 12 different use cases in the comprehensive white paper:
Smart Contracts for Digital Identity
Smart contracts can enable individuals to own and control their digital identity containing reputation, data and digital assets. This allows individuals to choose what personal data to disclose to counterparties, giving enterprises the opportunity to seamlessly know their customers.
Smart Contracts for Records
Smart contracts can digitize Uniform Commercial Code (UCC) filing, and automate their renewal and release processes. Additionally, smart contracts can atomically perfect a lender’s security interest at the moment of a loan creation.
Smart Contracts for Securities
Capitalization table management can be simplified and intermediaries circumvented in the chain of securities custody through the implementation of a smart contract. The smart contract can facilitate the automatic payment of dividends, stock splits and liability management, while reducing counterparty and operational risks.
Smart Contracts for Trade Finance
Smart contracts can facilitate streamlined international transfers of goods through faster Letter of Credit and trade payment initiation, while enabling higher liquidity of financial assets.
Smart Contracts for Derivatives
Post-trade processes can be streamlined through smart contracts, eliminating the duplicative processes performed by each counterparty for recording and verifying trades and executing applicable trade level and other lifecycle events.
Smart Contracts for Financial Data Recording
Financial organizations can leverage smart contracts for accurate, transparent recording of financial data. Smart contracts enable uniform financial data across organizations, improved financial reporting and reduced auditing and assurance costs.
Smart Contracts for Mortgages
Smart contracts can automate the otherwise confusing and manual process behind a mortgage contract. A smart contract in this case automatically connects the different parties involved with mortgage transactions, allowing for a frictionless and less error-prone process.
Smart Contracts for Land Title Recording
By facilitating property transfers through smart contracts, fraud propensity can be reduced while increasing confidence in identity. These transactions can occur with increased efficiency, integrity and transparency, resulting in reduced cost and enhanced liquidity.
Smart Contracts for Supply Chain
Smart contracts can provide visibility at every step of a supply chain. Internet of Things devices can write to a smart contract as a product moves from the factory floor to the store shelves, providing real-time visibility of an enterprise’s entire supply chain.
Smart Contracts for Auto Insurance
Currently, the car insurance claims process is disjointed, but the process can be improved significantly through smart contracts. The smart contract records the policy, driving record and reports of all drivers, enabling Internet of Things-equipped vehicles to execute initial claims shortly after an accident.
Smart Contracts for Clinical Trials
Clinical trials can benefit from smart contracts through increased cross-institutional visibility. The smart contract includes privacy-preserving computation that improves data sharing between institutions while automating and tracking consent for patient data.
Smart Contracts for Cancer Research
Smart contracts can facilitate the sharing of cancer data throughout a cancer research consortium. The smart contract can facilitate the otherwise cumbersome patient consent management process and incentivize aggregate data contribution and data sharing while maintaining patient privacy.
Some of those use cases (the ones regarding supply chain, digital identity, auto insurance, and clinical trials) seem very promising, as they may face the least amount of potential legal and/or regulatory issues.
Smart contracts can simplify supply chain logistics while reducing the chance of theft or fraud. Through the use of RFID tracking chips, all parties involved in the outbound shipping, transportation, and receiving of goods would be able to be on the same page. Everyone involved in a shipping transaction would see the same updates at the same time, so it’d be easy to know exactly where a product is and where it’s headed. This allows for granular-level inventory tracking and can ensure that individual products, and not just batch shipments, make it to their destinations. This enhanced tracing and verification would be a major deterrent to theft, fraud, or even human error.
Having a “self-sovereign” digital identity, enabled by smart contracts, means that an individual would own and control their personal data. The idea is that, instead of third parties holding and controlling an individual’s data (which increases the risk of having sensitive information exposed or stolen), a person would permit others to view relevant information in order to verify transactions or confirm identity. Owning your identification information online means your data’s safety is controlled by you, and not by some centralized third party that may be a target for hackers.
Auto insurance could immediately benefit from smart contract technology in regard to record keeping, as most industries could. But in the near future, as cars get smarter, vehicle “self-awareness” will allow for self-executing insurance claims. After an accident, a “smart” car could assess its own damage, relay details to the authorities, and open an insurance claim. After a widespread adoption of smart contract technology in the industry, competing insurance companies would be able to easily access the same information. This would increase the speed of claims processing, as well as ensure consensus regarding the accuracy of accident details.
Lastly, smart contracts may allow clinical trials to become more secure and effective by storing patient consent and tracking data, thus ensuring patient privacy. Only those specifically permissioned to access that data would be able to view the information. Due to the standardizing nature of smart contracts, cross-institutional access to important data during times of emergency would be possible, yet still secure. A smart contract could separate private personal information from relevant clinical data, allowing smooth interoperation between parties working on similar problems. Increasing efficiency in clinical trials could literally save lives.
It’s obvious that smart contracts could revolutionize the way people and enterprises interact with one another. But who would be able to host all these smart contracts? Nick Szabo says:
“Today the most secure environments for smart contracts are the most mature public blockchains, which are designed for trust minimization instead of trusting the often private and insecure system found resident with a central party.”
Ethereum is a maturing public blockchain, and its smart contracts are getting more secure every day. As soon as these industries are able to make the switch to blockchain-based smart contract technology, Ethereum will be ready.