I get asked the question a lot. And in the real world, what we think of a contract can be one sided sometimes or misleading, as we’ve all probably had that experience.

Example: You enter your local cell phone store, because it’s time to upgrade that iPhone 5 you’ve been clinching to for soooo long to the the latest and greatest. The sales associate greets you, “What can I help you with”, and you say “I need an upgrade and I’d like to try that new one without the home button, you know..? the one you need your face to unlock it with.” They smile and bring you to the kiosk where you can checkout, and after going over all the features you decide to go for it. As you go through the purchase process they keep whipping out this tablet and you have to initial, initial, sign here, sign here again, vile of blood, and then they ask for your first born. 🙂 all joking aside there was probably thousands of lines of small text that you just agreed to and you have no idea what it even said or even if you did know what it said you wouldn’t be able to understand the lawyer jargon. And seriously, humans write this stuff? But hey, you got that new shiny phone which you’ll probably drop next week and crack the screen and have to get it replaced.

Now, what if you actually understood what you were agreeing to and the other party, the “cell phone company” also came to agreement and both sides entered an understanding of the contract and this contract could execute seamlessly and effortlessly.

Enter the Smart Contract

Below is an example workflow of a smart contract:

1

Pre-Programmed Contract

The agreement rules and conditions are established by all parties and then coded

2

Chain of Events

If the events specified by the conditions happen, then the code automatically executes

3

Execution and Value Transfer

Once in process, the terms of the contract will automatically transfer the value to the correct parties

4

Settlement

The transfer of value to counterparties are recorded to the blockchain

Blockchain and smart contracts have the potential to increase the speed and efficiency of consumer services. Government and companies are the custodians of vital information (Social Security numbers, tax information, and identities) The security built into blockchain could add a new level of trust and transparency while addressing data protection and privacy concerns. Also, you could be warned if the contract you were about to sign would add undo exposure to your bottom line or to your bank account.

Most of us live on a budget and understanding the long term exposure of a contract and how it would effect your life even in the smallest way would be beneficial. It’s not like we take a lawyer with us everywhere we go, but what if that lawyer or the adjudication process was more seamless and automated? There has been much talk of, “who needs lawyers if there are smart contracts?” I think some of these legal issues will be resolved by smart contracts, but I don’t think lawyers are going away anytime soon.

Another example or use case of blockchain and smart contracts would be title companies. By digital knowing who owns what property and there is no outstanding legal action or liens against that property or ownership would be greatly simplified and save title companies from doing some much investigative work. If you doing anything in the database world, think of smart contracts to blockchain are like stored procedures are to an SQL database. They are both prepared code that you can save, so the code can be reused over and over again. Just like a stored procedure is a subroutine available to applications that access a relational database management system. Such procedures are stored in the database data dictionary.

A smart contract is deployed on the blockchain and executed when certain conditions are met. There are obviously big differences to their uses and immutability and non-repudiation that I won’t get into in this article. But rest assured, we’ll all enjoy using smart contracts in the near future, just like we like having that new shiny phone and smart devices in our home. Keep calm and Blockchain on 😉