Smart Contract Sweet Spots: Basic Implications (Blockchain report extract)



Published on 10 November 2018 |
by Michael Barnard

10 November 2018 of Michael Barnard

Along with our normal daily coverage for clean technology news, CleanTechnica it also produces in-depth reports on various aspects of clean energy and clean transport. One of the emerging technologies we cover is not directly a clean technological innovation is blockchain, which promises to be a catalyst for innovation in the green economy in the near future. Blockchain is probably best known to the public as "having something to do with cryptocurrency and Bitcoin, right?", Which is partially correct, but the technology itself has a wide range of applications, some of which will be crucial in the fields of distributed renewable energy , network management and energy storage, and smart contracts, among others.

The full report Blockchain: an enabling innovator for clean technology, which was published in July, is a deep immersion in the blockchain and its potential, and we will publish further extracts from the report in the coming weeks. (Read the last episode here.)

Obviously, shorter contracts rather than longer ones are good choices at the moment with the classic cryptocurrency contracts as collateral. With the volatility of cryptocurrencies, even one-month contracts also have potential risks for both parties. This limits them substantially, but it is easy to see a future in which the volatility of one or more large cryptocurrencies falls to levels similar to those of legal currencies, so that Herstatt's risks are more manageable.

As noted, they are not useful for mass e-commerce, and even the direct exchange of cryptocurrency for the immediate delivery of services or products available in electronic format has its problems. This is another substantial limitation. I can certainly see the small software vendors who choose to make cryptocurrency transactions for their software products and hosted services, but it's still unclear what's in it for most buyers.

Escrow contracts are useful for infrequent transactions that are not immediately resolved by e-commerce between entities with little or no history with one another. Where there is no trust or business relationship in progress, smart contracts will be useful. This has the potential to be profitable for purchases of larger services or goods delivered without intermediaries like Amazon, but it is not clear how the elimination of Amazon from the equation actually improves the service or costs for most of transactions. Given that today you can buy items for hundreds of thousands of dollars on Amazon, it is not clear what will happen in this space.

A clear sector in which smart contracts have potential is in cross-border purchases of finished products or raw materials in which there is no commercial relationship. The risk of Herstatt already applies due to exchange rates with the foreign seller, albeit at a lower level of risk. The screening of accounts receivable in a distant country is problematic at best.

This is particularly true for purchases from countries with bad experience for compliance with the rule of contract law. The purchase of raw materials or finished products from countries with serious corruption or judicial capture by corrupt companies or officials is fraught with risks. Smart contracts could reduce it significantly.

For transactions within countries with problems of endemic corruption, smart contracts are also advantageous. If buyers and sellers do not have access to legal recourse, the automatic and inviolable resolution of an intelligent contract has clear advantages.

Obviously criminal elements will continue to be happy with cryptocurrencies and will favor smart contracts. They have no means of enforcing normal contract law and usually work in low confidence environments. Smart contracts work well for dark web transactions, which explains Bitcoin's domain in that space.

There are not many multiparty agreements where smart contracts do not add complexity without adding value, but this is an area where smart contracts start to allow disaggregated corporate value systems. This is a sophisticated space, and there's probably gold in there.

Where the buyer has specific additional needs outside the mere delivery of goods or services that are measurable, of value, and sellers already accept the penalty clauses for non-delivery, it is the current weak point of the 39; activity.

The other weaknesses are monopolies. As the sole supplier of a good or service, they obtain the terms of the contract much more than buyers do. It is a situation of irregular power.

Stay tuned for more excerpts from Blockchain: an enabling innovator for Clean Technologor view the summary and request the full report at

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tag: blockchain, smart contracts

About the author

Michael Barnard is a C-level technology and strategy consultant who works with start-ups, existing companies and investors to identify opportunities for significant growth in turnover in the low-carbon economy. He is editor of The Future is Electric, a publication of Medium. He regularly publishes low-carbon technologies and policies at sites like Newsweek, Slate, Forbes, Huffington Post, Quartz, CleanTechnica and RenewEconomy, with some of his work included in textbooks. Third-party articles about his analysis and interviews have been published in dozens of global news sites and have reached # 1 on Reddit Science. Much of his work was born on, where Mike has been a Top Writer every year since 2012. He is available for advice, linguistic commitments and Council positions.

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