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Smart Contracts are one of the most popular applications of Blockchain technology. As Wikipedia says, a smart contract is a computer protocol intended to facilitate, verify, or enforce the negotiation or performance of a contract digitally. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible.
Smart Contracts are nothing sort of Smart as they are just pieces of code incorporating business logic and rule-engine to execute them. In this article we will explore what are the limitations in adoption of Smart Contracts and how AI can bridge the gap to make the adoption faster.
Before moving further, let us have a common understanding on how Smart Contracts work?
How Smart Contracts work
Let’s take an example of implementing Smart Contracts for the supply chain. Logistics and freight solutions involve a lot of paper-based contracts–there are high chances of stealing and losing them. The smart contracts can avoid this by providing secure, transparent digital version to all the parties involved–sender, receiver, intermediaries, customers, logistics partners, etc. Smart Contracts store business legalities and terms & conditions as codes.
- Transactions – Two parties (X-seller and Y-buyer) separated geographically want to trade some goods with each other. They involved a third party as a logistics partner to deliver the good under certain conditions of date of dispatch, date of receiving, damage/theft, if any. All these legal conditions go as the code in the Smart Contracts. The code executes the terms in pre-defined ways and doesn’t have the nuances of human languages. In simple words, If Y receives an order on the date, then initiate the transaction of XXX amount to the account XXX.
- Block – Once Y receives the order under the decided conditions, he triggers the transactions through Smart Contracts instead purchase orders or invoices, etc. Blockchain receives this code in an encrypted way via distributed network of ledgers.
- Verification – Once all the computers verify the transactions with an agreed consensus mechanism and on achieving more than 50% consensus, contract verifies the transactions.
- Hash – Each of this block is time stamped with a cryptographic hash and reference to previous hash, removing the chance of any manipulation or tampering.
- Execution – The agreed amount moves from Y’s account to X’s account.
While the process looks simple, Smart Contracts are tough to implement and still in an infancy state. As they are still maturing, they come with potential disadvantages of security breaches, execution flaws, immature coding practices and language. The lack of international regulations on smart contracts further leave the parties at a possibility of running into legal disputes.
Smart Contracts Adoption
Are they ready for adoption in highly distributed and large-scale organizations?
While some theories suggest that they are ready for enterprise-wide adoption and will achieve maturity with more organized efforts towards it, some negate adopting them. The very first challenge of adopting Smart Contracts for enterprise level is limited manpower available for coding and managing them. Enterprises need all-inclusive engineering capabilities to code, manage, secure and test Smart Contracts for developing secure solution. This requires heavy investment in hiring engineers with right skills and proficient in languages like Solidity (one of the widely used Smart Contracts language).
The second area of concern is security in form of end-point vulnerabilities, public and private key security and vendor risks associated with Blockchain. Experts believe that Smart Contracts are the most vulnerable points for security breaches, cyberattacks and technology failures. Organizations have to implement adequate testing measures to prepare for these risks before implementing Smart Contracts.