Holland & Knight’s Dewey said he believes the definition around smart contracts can be varied. For the purposes of this conversation, it is snippets of code that can change the ledger or a legal contract that is implemented on the blockchain. Of course, he outlined several benefits and challenges to this new innovation in the area of smart contracts:
- Smart contracts are coded so there is less ambiguity than prose;
- Verification can be achieved even within a trustless environment;
- Self-executing; so once released, it is difficult to impede execution; and
- Integrates well with IoT, artificial intelligence (AI) and machine learning.
- Must balance transparency with privacy concerns;
- Infrastructure needs to be updated;
- Lack of experience with blockchain technology in IT departments;
- Lack of education and understanding of the technology in other departments, including compliance;
- Development of uniform standards and protocols; and (of course)
- Need to overcoming custom and tradition (e., change is hard.)
So a real world example of how a smart contract was implemented can be seen in how Barclays did it with an interest rate swap prototype. Essentially, the investment bank set up an incubator of coders who worked with their legal department to understand how these swaps (trades) worked legally. They distilled three lines in the process that could be coded — (x) the amount of cash; (y) the interest rate; and (z) the currency. Once this information was garnered, the transaction could be solidified and then stored on a blockchain.