With Web3 on the horizon and digital transformation in the air, blockchain technologies like smart contracts are becoming more common in business processes. Every company should be asking how can you incorporate these technologies into your business model.
For context, a smart contract is a self-enforcing piece of code that exists on a blockchain and automatically executes agreed-upon actions when certain conditions are met. Most run on the Ethereum blockchain, though some use less well-known blockchains like the Binance Smart Chain (BSC) and Polkadot. Smart contracts can be legally enforceable, though their legality depends heavily on the terms of the agreement. Most use cases don’t involve industry-standard legal terms.
While smart contracts may be useful in helping streamline specific processes and can prevent contract breaches when executed properly, they also have limitations and are unlikely to wholly replace traditional legal contracts. Still, smart contracts have many different applications across various industries. Here are some of the industries that either are or could be benefiting from smart contracts right now:
1. Health Care and Pharmaceuticals
The healthcare and pharmaceutical industry is subject to stringent government regulations like the Health Insurance Portability and Accountability Act (HIPAA) and the Health Information Technology for Economic and Clinical Health (HITECH) Act. Both regulations require healthcare organizations to secure electronic health information, making blockchain a great industry tool because of its foundational cryptographic nature.
Blockchain provides a fast, secure way to share patient information and can help healthcare providers adhere to HIPAA requirements. Healthcare smart contracts could also allow hospitals and clinics to share patient data with insurance providers, streamlining claims processes and automating insurance payments while providing patients a better, immutable data stream regarding their health records and claims process.
Clinical drug trials are another promising use case for smart contracts. Because predetermined conditions must be met for the contract to be executed, researchers can use them to prevent ethical conflicts. For example, unless a trial participant reads and signs the proper consent forms, the smart contract will not release their medical records to the researchers.
Many healthcare-focused startups die in the “valley of death” when trying to bring new pharmaceuticals or medical technology products to market. These inventors and founders could benefit greatly from using smart contracts to raise capital from a wider investor base internationally, including from investors who are specifically interested in the startup’s research focus.
Smart contracts are also useful for the music industry. Today, streaming royalties make up most of an emerging artist’s income. Music labels can simplify these royalty payments by using smart contracts. When fans stream music, the smart contract can automatically release the proper payment to the artist and the label.
Tune.fm, a decentralized Web3 streaming platform, is a great example of how artists can use blockchain technology to generate income and build a fanbase. The platform uses smart contracts to automatically pay artists any time someone streams their music, cutting out the record label entirely. Artists can also mint and sell NFTs of songs, albums, videos, and exclusive experiences directly to fans, allowing more genuine, quality interactions between fans and artists.
3. Retail and E-Commerce
Both physical and online stores can leverage smart contracts to streamline their back-end processes. For example, brick-and-mortar businesses can use smart contracts to automate time-consuming administrative processes like payroll administration and contractor payments.
Retailers can also combine smart contracts and supply chain management techniques to hold logistics companies accountable for making deliveries on time and using verifiably quality products from expected points of origin. For example, a business might expand supply chain visibility by assigning unique blockchain IDs to each inventory unit. If their supplier were to deliver late, the smart contract could automatically trigger a penalty. And payments for international deliveries would not be released without on-chain verification of the country of origin and related sourcing priorities.
4. Financial Services
Because decentralized finance (DeFi) is a big part of Web3, it is no surprise that the financial services industry was an early adopter and is now leading in blockchain tech.
The insurance industry is a great example. Because smart contracts automatically self-validate data across the blockchain, using smart contracts for insurance can help reduce the risk of fraudulent claim compensation.
Peer-to-peer money transfers are another promising use case for smart contracts in fintech. You have two options if you want to send money internationally using traditional remittance services like PayPal, Western Union, or traditional bank wires. You can pay a significant fee to send it in real-time or process the transfer over a few days for free or a significantly reduced fee. Blockchain-based remittance services like Stellar and Ripple enable people to make instant payments in real-time with minimal fees, which could help facilitate international business.
5. Human Resources
Although blockchain is still very new to administrative industries like HR, smart contracts have enormous potential to simplify some of the more tedious back-end work and free up HR professionals to work more directly with people.
Probably the most obvious use case is in recruitment, as HR could replace traditional employment contracts with smart contracts to provide new hires with easier access to benefits packages. Rather than manually implementing the provisions in the contract, which often results in delays, a smart contract would automatically implement the benefits as soon as the probation period ends. And recruitment teams could require potential hires to use a blockchain-based due diligence service to verify their educational and work credentials to avoid potential fraud.
HR departments could also use smart contracts to automate administrative tasks like payroll processing. In addition to saving time, this application could save businesses money by reducing the risk of human error in calculating wages.
6. Real Estate
There are so many potential applications for smart contracts in real estate that it would be difficult to review them all in one blog post.
Take tokenized real estate, which allows people to make micro-investments on a property by purchasing digital tokens representing shares in the property. This arrangement lowers the barriers to traditional investing and makes it possible for ventures to generate a lot of capital quickly.
Mortgages are another promising use case. Because data on the blockchain is self-verified and immutable, decentralized digital ledgers could become a reliable method of recording credit scores and real property transfers and encumbrances. Lenders could use this ledger to determine their risk before creating a smart contract detailing the terms of the agreement. And skilled trade companies could easily record a lien on a property if the property owner fails to pay according to the service contract’s terms.
A smart contract could also help prevent missed payments by automatically transferring funds from your account to the mortgage company and updating the blockchain accordingly. This way, you’d have a verified, immutable record proving that every transaction happened on time.
On a less practical note, you can also use smart contracts to purchase real estate in the Metaverse. It’s unclear exactly how far digital real estate will go, but its early adopters remain optimistic.
Can Smart Contracts Benefit Your Business?
If you can find a realistic use case for smart contracts, your business can absolutely benefit. However, whether smart contracts can be advantageous for your business depends heavily on your specific industry and business model. While you can do a lot with blockchain, it is far from a one-size-fits-all solution. A good rule of thumb is to ensure that your proposed use makes sense without any blockchain technology involved.
Smart contracts are rigid and coded to execute automatically if certain conditions are met. Parties determine contract terms before sending them to the blockchain, where they are relatively permanent. If unforeseen circumstances make it impossible to fulfill some conditions, working with a smart contract can be difficult. Additionally, poorly written smart contracts can self-execute even if the conditions haven’t been met, causing more damage and hassle than a traditional contract, especially with parties that are contracting across state or international borders.
Work With Harris Sliwoski on Your Smart Contracts
If you have questions about smart contracts, such as what provisions to include in the contract and how to implement them, you’ll want to work with a qualified Web3 attorney. At Harris Sliwoski, we can ensure your smart contracts are well-written and avoid common pitfalls. We can also help if there is a dispute over a smart contract.
While smart contracts are still in their infancy, they have a promising outlook. Stay tuned for more on similar Web3 developments. We are sure to see all sorts of new smart contract use cases popping up in the coming months years. Reach out to Harris Sliwoski today!