Why smart contracts can't be fully automated

Smart contracts, enabled by blockchain technology, have the potential to streamline all manner of transactions. But most of them will still require humans in the middle.

By Thor Olavsrud
May 10, 2017

This has the potential to blow the doors off in areas like licensing and digital rights management. In the music industry, for instance, performers, songwriters, producers, publishers and labels could all hold rights to a particular track in various percentages. In many cases, those rights are described in a contract (or numerous contracts) locked in a drawer somewhere. When an entity seeks to license a track, determining who holds what rights can be a nigh insurmountable task. Several blockchain-based services have proposed creating a centralized ledger of digital rights that would automate the process, immediately distributing payment to all rights-holders in the correct percentages whenever a transaction occurs.

The problem, as Papatsaras describes it, is that unlike vending machines, most contracts aren't binary. Consider, for example a service-level agreement (SLA) in which a service provider declares that it will make every reasonable effort to restore service in the event of an outage.

"Now try to translate that into code," Papatasaras says. "Trying to figure out what triggers a payout or violates the terms of a contract, that is hard. In real, human terms, I could withhold payment and take you to court instead, whereas an automatic contract would instead pay out."

"I don't think you will ever create smart contracts that will cover 100 percent of use cases," he adds. "I don't think humans, at least in the next 10 to 15 years, for non-binary transactions, will be eliminated from the contract process. Once contracts are in place are agreed upon, then perhaps transactions that used to involve legal disputes will be eliminated by reducing ambiguity."

Fully automated smart contracts may be pie-in-the-sky for now (at least in areas that can't be reduced to binary transactions) in Papatsaras' view, but even partial automation with smart contracts can pay huge dividends.

"I think that with the internet of things and more and more devices that we are bringing into our workplaces and homes and even cars, smart contracts will become real life in a few years," he says. "We are closing the gap between having technology that relies on humans, and moving to the next step, which is technology that writes itself."

In the meantime, Papatsaras believes smarter contract lifecycle management leveraging machine learning will be low-hanging fruit in the legal sphere.

"Getting a contract approved and signed to close a deal is part of every sales cycle, but it can drag on for what seems like forever," he writes. "There are a number of variables that can cause delays, including losing track of where the contract is; content clarity; compliance with the organization's practices; confusion about the most recent version; interdepartmental politics and bureaucracy."

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