Smart contracts can redefine business – but that doesn’t mean wide openness

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

A contract is the obligation of Party A to do what Party B wants to do at a fair price agreed upon by both parties, and in many respects it is the basis for the normal functioning of human society. As proof, even King Hammurabi, credit As the author of one of the oldest laws and regulations in the world, he thought it appropriate to codify regulations concerning the connections and contractual obligations between merchants and their agents.

While in the era of great rulers, merchants trusted their agreements on clay tablets, today’s counterparts increasingly trust their contracts on the blockchain. They want to utilize smart contracts, decentralized applications (DApps) stored on-chain as executable code that any network user can launch. Once an innovation brought about by Ethereum, smart contracts now find themselves powering hundreds of decentralized finance (DeFi) services where users trust code rather than centralized entities. While centralized entities can perform many of the same functions, DeFi is built around the idea that centralization promotes censorship and inefficiency while decentralized services are more open, transparent, and secure.

All of this translates nicely to the corporate world. Any business operation usually consists of a specific sequence of operations that the company performs in a loop over and over again. Sounds a bit like a computer algorithm, doesn’t it? The same is true for contracts, especially whose terms and conditions can easily be imagined as a set of constants with if-else terms and conditions. Automated and self-enforcing contracts greatly reduce operational uncertainty. By making it decentralized, companies can maintain a balance of power and avoid trusting centralized middlemen. This is perhaps the most important gift of blockchain to the business world.

Therefore, it is not surprising that more and more companies are bringing smart contracts into the business world.Institutional blockchain project Watr Foundation is moving commodity transactions on-chain via smart contracts manage most related processes. ClearX leverages smart contracts to help companies resolve complex agreements, such as roaming disputes between telecom providers. SEIF applies similar logic to legal technology, providing clients with a wealth of templates to use. The momentum is already there, and in the future, we may see more big companies adopt smart contracts.

related: Blockchain technology can change the world, not just through encryption

At first glance, crypto enthusiasts might see this as a promising trend. More companies using blockchain means more cash and liquidity for the cryptocurrency ecosystem, which means more fuel for moon voyages, right? unnecessary.

Build walls, not bridges

Let’s imagine a future where businesses are already moving on-chain and entire collections of smart contracts now manage their day-to-day interactions. This vast digital infrastructure relies on millions of data streams, from sensor-dense automated production lines to smart shipments, sending updates about their location and status, and everything is verified, verified and paid for with little to no need Manual input. Of course, payments are made in tokens, and “blockchain” is written throughout the picture.

But, here’s the first question: no one said any blockchain that powers this has to be public. If anything, it only makes sense for businesses to opt for a private and permissioned blockchain, which will be closed to everyday investors and traders. This kind of crowd will only ruin partisanship by bringing the speculative element into a system where all the major players are actually interested in having a stable unit of value. Otherwise, it becomes more difficult to transact in this ecosystem. Public blockchains do not place the burden of funding and maintenance on their members, but enterprise-level companies will hardly find themselves burdened by it.

Stablecoin issuers shouldn’t be too enthusiastic about the picture either. Indeed, they are now much better positioned to enable all things business-to-business because they do provide temporary stability, which is what a business needs. Those who now manage to get into B2B blockchain projects might as well make decent profits. Further down, though, they may eventually be replaced by central bank digital currencies (CBDCs).

From a business standpoint, a CBDC—perhaps a “wrapper,” i.e. brought on-chain like a wrapped Bitcoin (wBTC) on the Ethereum network—is ideal for on-chain payments because it eliminates associated with a large number of uncertainties. cryptocurrency. In addition to being as stable as fiat currency, it is virtually immune to any regulatory woes and is a very legal currency rather than a native token that their private blockchain can use.

related: Private, Public and Consortium Blockchains: Differences Explained

The corporate embrace of blockchain could turn out to be an interesting — if not epoch-making — event, but it’s more important to tech geeks than speculative traders. If you’re after a stable and smooth OS rather than a free race to the moon, there’s not much point in going public.

the other side of the coin

Yes, much of our vision for the future of business is powered by private blockchains, isolated from the white noise of the larger world. However, it’s just as easy to envision a more public-facing, business-focused ecosystem — but one that focuses on smaller players who are as large as the giants gained from the shift. From smart contract-based trustless operations to opportunities to raise funds through token offerings, and even promotions that leverage non-fungible tokens (NFTs) to increase customer loyalty, many options are on the card.

The difference is that small and medium-sized companies may prefer to utilize public blockchains rather than just because they bring so many resources without incurring any additional cost to them rather than enclosing their private blockchain. This includes thousands of nodes already running, as well as a range of services provided and run by independent development teams. Therefore, anyone looking to simplify blockchain for small and medium businesses can enter a nice niche.

Innovate like Bitcoin (bitcoin) was on its own at the time, and the technological development it initiated was moving forward slowly but surely. As some of the most ardent evangelists seem to believe, you cannot solve any problem by simply on-chaining it, but there are areas and tasks that could benefit from a decentralized solution. Commerce is one of these areas, and while its biggest players may choose to stick to their own destiny, others will be more open to the public and more opportunities for retail investors.

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 solely those of the author and do not necessarily reflect or represent the views and opinions of Cointelegraph.