Today, lawyers typically mediate contracts between parties, while governments keep records of them. Blockchain-based “smart contracts” promise a direct, transparent and instantaneous contractual transaction between any two parties. Because the contracts don’t depend on government intervention, they can be transnational.
According to blockgeeks.com, “smart contracts not only define the rules and penalties around an agreement … but also automatically enforce those obligations.” The contractual system is based on the issuance of a “digital entry key” which “works on the If-Then premise and is witnessed by hundreds of people.”
Example: Person A pays person B and the blockchain generates a digital receipt and a “digital entry key” held by person B. On fulfilment of the terms of the contract, person B sends the key and person A enters it, signalling contractual fulfilment. If the key is not entered by a specified date, the contract is cancelled and the funds returned to person A. A trusted third party must validate that person B has fulfilled the contract; third-party validation represents the biggest hurdle the system must resolve.
What can Smart Contracts do for your business?