What are Smart Contracts? (And Why Do Publishers Need Them?)
In last week’s blog post, we discussed how blockchain can help publishers increase revenue by automating rights information and creating “smart contracts” which could speed up the sales and licensing process. But, what exactly are smart contracts, how are they generated, and why should publishers consider using them?
Originally coined by developer Nick Szabo in 1995 in an article called “Smart Contracts” in Extropy magazine, smart contracts can digitally facilitate, verify, and enforce an agreement between two parties in a trackable way using algorithms. Each party can see the progress of the other throughout the course of the contract process, without needing to be in the same room. As described by Tsui S. Ng in Business Law Today, “The term ‘smart contracts’ refers to computer transaction protocols that execute the terms of a contract automatically based on a set of conditions.” By translating the contract terms into a series of if-then functions, the smart contract is able to respond as each condition is met and move on to the next. Legal agreements can be struck almost instantly.
Though Szabo originally thought of the idea for smart contracts in the mid-1990s, it has only been through the use of blockchain that smart contracts have begun to be utilized in the marketplace. Blockchain provides the security, the real-time tracking, and accountability that allows smart contracts to be more viable for important transactions. And, these smart contracts could help companies become quite lucrative.
According to an article in Forbes, “Accenture research published at the start of 2017 showed investment banks alone could save up to $12 billion per year by adopting blockchain and smart contracts.”
For publishers, the world of contracts unfortunately continues to be predominantly ruled by paper, creating a lag in transactional payment and royalty collection. But, that doesn’t have to be the case going forward.
With the security and speed of smart contracts, publishers could dramatically change their business. “Smart contracts don’t just contain the terms of a contract but also can act in programmed ways, delivering aspects of an agreement once specific terms are fulfilled. If connected to additional resources, such as distribution networks as well as online and physical stores, the contract could automatically deal with recouping costs and paying royalties,” Tom Cox, development director for IPR License, wrote in a piece for Publishing Perspectives last fall. “If the contracts were sophisticated enough, the complex area of royalties could be handled in almost real time by the system.”
For publishers who are finding that rights transactions are even more essential to their bottom-lines, implementing a system that uses smart contracts could revolutionize their business and greatly increase revenue.