Smart contracts can redefine business — But this doesn’t imply wide openness

In his monthly column on crypto, Israeli serial entrepreneur Ariel Shapira covers emerging technologies within the crypto, decentralized finance, and blockchain space, as well as their role in shaping the 21st century economy.

The contract, an obligation that Party A will do something Party B wants at a price they both agree is fair, is in many ways fundamental to the functioning of a human society. As a testimony to that, even King Hammurabi, accredited As the author of one of the oldest legal codes in the world, he saw fit to codify rules on the contractual links and obligations between merchants and their agents.

While in the time of the great ruler, merchants relied on clay tablets for their deals, today's counterparts increasingly rely on their contracts on the blockchain. They seek to leverage smart contracts, decentralized applications (DApps) stored on-chain as executable code, which can be activated by any user on the network. Once an innovation introduced by Ethereum, smart contracts are now powering hundreds of decentralized financial services (DeFi) where users trust code rather than a centralized entity. While centralized entities can perform many of the same functions, DeFi is based on the idea that centralization encourages censorship and inefficiency, while decentralized services are more open, transparent, and secure.

All this translates very well in the corporate world. Any business operation often incorporates a specific sequence of actions that the company repeats over and over again. Sounds a bit like a computer algorithm, doesn't it? The same goes for a contract, especially with its easy-to-imagine terms and conditions as a set of constants with if-else terms and conditions. An automated and self-executing contract greatly reduces operational uncertainty. By making it decentralized, companies keep the balance of power intact, avoiding the need to rely on a centralized middleman. It is perhaps the most important gift of blockchain to the business community.

Therefore, it is not surprising that more and more companies are bringing smart contracts to the business world. Watr Foundation, an institutional blockchain project, is moving commodity trading on-chain, with smart contracts manager most of the associated processes. ClearX leverages smart contracts to help companies resolve complex deals, such as roaming disputes between telecom providers. SEIF applies similar logic to legaltech, giving clients a plethora of templates to use. The momentum is there and going forward, we are likely to see more major companies adopting smart contracts.

Related: Blockchain technology can change the world, and not only through cryptocurrencies

Cryptocurrency enthusiasts may see this as a promising trend at first glance. More companies using blockchain means more cash and liquidity for the crypto ecosystem, and that means more fuel for the trip to the Moon, right? Not necessarily.

Building walls, not bridges

Imagine a future where businesses have gone on-chain and entire sets of smart contracts now manage their daily interactions. This gigantic digital infrastructure relies on millions of streams of data from sensor-driven automated production lines to intelligent shipments that issue updates on their location and status, all validated, authenticated and paid for with little to no human intervention. Payments are in tokens, of course, and "blockchain" is written all over the image.

But, here's the first problem: no one said that none of the blockchains that power this have to be public. If anything, it only makes sense for companies to opt for private, permissioned blockchains, which would be closed to investors and everyday traders. This type of crowd would only spoil the party by bringing a speculative element to a system where all the major players are genuinely interested in having a stable unit of value. Otherwise, transacting within this ecosystem becomes much more difficult. A public blockchain does not impose the burden of funding and maintenance on its members, but enterprise-level companies will hardly be burdened by it.

Stablecoin issuers shouldn't get too excited about this picture either. Admittedly, they are now much better positioned to enable all things business-to-business as they offer tentative stability, which is what businesses need. Those of them who manage to get into B2B blockchain projects right now could also make a nice profit. Later on, however, they may end up being dethroned by central bank digital currencies (CBDCs).

From a business standpoint, a CBDC (a "wrapped" perhaps, that is, brought on-chain as wrapped Bitcoin (wBTC) on the Ethereum network) works well for on-chain payments because it removes a wide variety of uncertainties. associated with crypto. As well as being as stable as fiat can get, it is hardly affected by any kind of regulatory situation and is largely legal tender, unlike native tokens that might use their private blockchains.

Related: Private, public and consortium blockchains: the differences explained

A corporate adoption of blockchain may turn out to be an interesting if not historic event, but there is more to it for a tech geek than a speculative trader. Keeping things public hardly makes much sense if you're after a smooth, stable operating system and not a free run to the moon.

The other side of the coin

Yes, much of our vision for the future of business is powered by private blockchains, shielded from the white noise of the world at large. However, it is just as easy to imagine a more crowd-oriented, business-focused ecosystem, but one focused on smaller players who have as much to gain as the giants from this transformation. From trustless trading based on smart contracts to opportunities to raise funds through token offerings, or even promotional events that use non-fungible tokens (NFTs) for customer loyalty, there are plenty of options at play.

The difference is that small and medium-sized businesses may prefer to take advantage of public blockchains rather than isolate themselves on private ones simply because they bring so many resources to the table without placing any additional cost on them. This includes thousands of nodes that are already up and running, as well as a variety of up and running services courtesy of independent development teams. Therefore, anyone looking to simplify blockchain for small and medium-sized businesses could find a good market niche.

As innovative as Bitcoin (BTC) was only in the past, the technological evolution it set in motion is advancing, slowly but surely. It may be true that no problem can be solved simply by chaining it together, as some of the most ardent evangelists seem to believe, but it is equally true that there are spheres and tasks that can benefit from decentralized solutions. Business is one of these spheres, and while its major players will likely choose to keep their own lot, the others will be more open to the public, providing more opportunities for retail investors as well.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making a decision.

The views, thoughts, and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.