By Shubho Pramanik, Senior Vice President, Applied Cloud Computing (ACC)
Contracts are the bedrock of any business. As global trade becomes much more integrated with the supply chain being distributed over the globe, contracts have seen a lot of changes over the years. Written or oral contracts have been replaced with digital contracts that not only transcend distance but also are compliant with both domestic and international laws. Digital contracts overcome the lacunae seen in written contracts such as time-consuming processes, prone to loopholes, subject to simple spelling mistakes apart from being inferred in unintended ways. However, digital contracts also have their own set of limitations. Parties to the contract with malafide intent can tamper with the contract. Similarly, there are instances of signature fraud and other irregularities also seen on several occasions. Against this backdrop, the smart contract has emerged as the panacea to these problems. Therefore, customers & enterprises are increasingly leveraging the power of smart contracts to conduct various financial transactions, supply chain & logistics management, along with using it in healthcare, real estate, retail, and international trade among others. Given the rising adoption of smart contracts, the market size for smart contracts is likely to reach $1.46 billion in 2028 from $315 million in 2021.
Cloud-based smart contract leads the way:
Cloud technology has revolutionised the way contracts are written and entered into. This technology has enabled parties to prepare and sign a smart contract in a matter of minutes. Typically, in a smart contract, the software programmes are coded in such a way that pre-defined terms and conditions are pre-set in the smart contract. In simplistic terms- the “if, then, and when” clause of a contract is programmed and as soon as the conditions are met, the contract is executed automatically. So, these contracts are self-executing in nature that become accessible to intended users across a distributed cloud network. Here the power of automation is harnessed and the enterprise saves a lot of time and cost by freeing up critical human resources for other core functions of the company.
Smart Contracts work on the basic principle of getting multiple tasks done simultaneously. Cloud technology enables such parallel processing without any disruptions. Moreover, smart contracts have the highest form of cybersecurity features. Firstly, digital signatures have been emblazoned in smart contracts. With legally recognised digital signatures, the parties to the contract are not only authenticated but also provide a robust security guarantee. Serverless architecture is another feature of smart contracts. It means there is no outside intervention in managing the system. Also, the cloud provider manages the allocation of servers as per the usage of the enterprise. Therefore, companies don’t have to invest large sums upfront. They only have to pay as per their usage. This makes the investment very affordable for enterprises without the hassles of making any long-term financial commitment. With such customer-friendly features, the usage of smart contracts is on a rise.
Benefits galore:
The COVID pandemic has proved to be a steep learning curve for the world as people have learnt to adapt and adopt to innovations. As smart contracts are faster, more efficient, and accurate; a lot of time and cost are saved through automation. Moreover, smart contracts are immutable. So, the terms of the contract are directly written into codes and shared across the distributed, decentralised cloud network. It is very difficult to hack this network given the high level of security. So, any cybersecurity breach becomes a daunting task. Importantly, smart contracts are self-executing contracts devoid of intermediaries leading to both time and cost savings.
Right technology partner:
As practical use cases of smart contracts are increasing, enough caution has to be taken to make the system infallible. A recent report published by the Bank of Israel showed that smart contracts can be written in malicious ways that lead to losses for users. Therefore, allowing anyone who wants to write the smart contract may pose a significant risk to the entire system. Moreover, smart contracts can’t eliminate the involvement of third-party professionals. For instance, while the software code can be written by the engineers, they will still require the help of lawyers or accountants to apprise them of the right terms for use on the contract. In this context, the enterprise should select the right technology partner with the expertise and experience in executing smart contracts. This will save a lot of time and cost for the businesses and enable them to harness the true potential of smart contracts in an optimum manner.
