What does the future hold for smart contracts?
Like with any new technology, when it comes to smart contracts, a pragmatic approach must be adopted and current limitations must be taken into account. Any organisation looking to adopt smart contracts needs to understand the true applications and where there is the possibility to deliver the most value to clients. To do this, the skills mix needs to be rapidly adapted – from recruiting computer and data scientists with legal understanding to upskilling lawyers with foundational technology and data skills, ensuring they are equipped with the knowledge and confidence to help clients unlock business value through legal change and more specifically, smart contracts.
Akber Datoo, Managing Partner, D2 Legal Technology, outlines what the future holds for smart contracts.
More than a buzzword
As we head into 2019, the hype is still far ahead of the practical adoption of smart contracts. To start with, there is still no agreed definition of the term – with academics and experts still lacking consensus. Of course, the technology to enable smart contracts has evolved significantly over the past two decades, with the arrival of Distributed Ledger Technologies (DLT) such as Blockchain making the smart contract concept more commercially feasible.
Nonetheless, it is this combination of automated process and human input that underpins the ongoing challenges regarding the adoption and enforcement of smart contracts. The answer will in part depend on whether there will be this development of lawyers with the confidence in the technology and the ability to undertake, or at least be involved in the review of the code, possibly in some more amenable form, representing the smart contract. Additionally, they would need to be able to understand where to optimally blend code with the natural language required for non-operational contracts.
Furthermore, there are concerns regarding DLT; from the inherent reliance upon cryptocurrencies, with their dark web connotations and global concerns regarding their future stability, to the open and public nature of DLT networks. The financial market is looking to address this with the creation of closed, market-specific DLTs – and it is possible the legal profession will follow suit. Yet, the processes, skills and business practices relating to the wholesale adoption of smart contracts are still very much under development.
Plug and play
Smart contract applications are definitely still a work in progress. Developments are exciting, as smart contract companies such as Clause.io are looking to feed real-time Internet of Things (IoT) data into a smart contract and use real-time data – such as from a delivery van to support supply chain processes, to the creation of standardised pieces of code to provide further automation – and minimise lawyers’ coding requirements.
However, before any such innovation can be embraced, the fundamentals must be in place: lawyers will still require a basic understanding of systems, data and IT development before being let loose in the use of any standardised code if they are to avoid unintentionally including bugs or errors within the contract. The concept of plug and play smart contracts is currently unrealistic.
A look to the future
Smart contracts clearly have the potential to be a key technology for the future once it has matured and legal considerations are resolved. Until then, the legal profession must take practical next steps to fully unlock the business value of smart contracts. As well as addressing the educational and skillset gap, there needs to be a greater appreciation of business processes related to legal agreement data and basic data governance principles put in place and implemented in relation to them.
It is essential to step back and understand the true implications of this technology. It is tantalising and logically compelling and without a doubt will have a significant role to play in the years ahead. But there is a long way to go before businesses can confidently and wholeheartedly embrace smart contracts for anything other than the simplest of agreements. To gain real traction, DLTs need to mature, smart contracts need to be legally tested, and they need to be enforceable.