3 tech trends for an autonomous future, part 3: The rise of blockchain and smart contracts
In this series, we have been exploring three major technological trends that are converging toward a future where autonomous tech is widely adopted in organizations. Previously, we discussed the implications of the law of acceleration, or Moore’s Law, and the rise of ubiquitous computing. In this post we will cover the final trend, the rise of smart contracts and blockchain technology, and how the two combined will have a transformative impact.
The role of any contract is to establish the rules of exchange between parties under certain explicit conditions. Put more simply, a contract represents what we agreed on. Contracts only have value if they are enforceable — if once the contract is signed, what is written and what we agreed on will happen whether we still want it or not. If it’s easy for one of the parties to default without consequences, the contract has less value. When contracts are strongly enforceable, it’s less risky to enter into transactions, leading to increased exchange and economic activity. On the contrary, when contracts are less valuable and can’t guarantee that all of the parties will fulfill their obligations, there is less trust and less incentive to interact.
Traditionally, enforceability of contracts depends on a legal system surrounded by a broader cultural and political environment validating it. So, trust in the system of exchange depends greatly on jurisdiction. Countries that have managed to create and sustain a system that keeps contracts valuable tend to have created more wealth as a result. Since contracts made in those jurisdictions work reasonably fairly for all parties, more and more-valuable transactions are conducted there, and they became geo-magnets of talent and resources.
In the case of smart contracts, what distinguishes them from the traditional kind written on paper is that they are automatically authenticated and self-enforcing through computer code. In the algorithmic trading world, we are used to computer protocols as self-enforced contracts. For example, when you buy a stock electronically on an exchange using a brokerage account, you are essentially transacting self-enforcing proprietary rights written in a computer code. But for that to be possible in the electronic-trading world, there is a whole infrastructure of trustworthy institutions and people with the incentive to check each other, making sure rights and money moved in the right direction and into the right accounts. Now, if smart contacts can break out of these limited specialized contexts like electronic trading and find their way into daily life, this would be huge. Suddenly it would become very cheap to trust anywhere
In order for smart contracts to function outside constrained systems, it must be possible to answer a fundamental question: If a contract is self-enforcing, how can I trust that the person holding it is who they say they are? This needs to be solvable not in a human way in a specific location, like having your dad vouch for you, but anywhere in the analog and the digital worlds using machine language. And that’s where blockchain technology comes into play. Without being byzantine about it, let’s say that applications like Bitcoin have demonstrated workable and elegant solutions to that security problem. That step has shown the way to how one could have the whole system of enforcement attached to each contract and moving around with the contract, independent of geography and jurisdiction.
With smart contracts and blockchain technology combined, soon autonomous machines will be able to enter and get out of contracts by themselves — in the end, it’s just computer code. This will be the basis of B2B relationships between autonomous organizations and can open the door to secure, location-agnostic transactions, where the enforcing system travels with the contract.
When this technology starts to make its way into the interactions that govern our daily lives, it will have a profound and transformative impact on all the contractual levels of society — greater than anything since modern representative democracy, and probably even greater than that.
