Blockchain, the decentralized digital ledger, functions as the technology behind smart contracts. Smart contracts are contracts between at least two parties, which are written in computer code and stored and operated on a blockchain. Smart contracts “automatically verify, execute and enforce the contract based on the terms written in the code.”[1] For instance, upon the happening of an event, the contract would self-execute. Once all the conditions in the code are met the provisions are automatically enforced.

As blockchain technology removes the need for banks to act as intermediaries to record transactions, smart contracts remove the need for lawyers or courts to enforce agreements. Lawyers will however be necessary in drafting the terms of the agreement and ensuring their client’s interests are protected. Above the Law notes that as more companies and individuals utilize smart contracts, lawyers “may need to transfer, or at least be fluent in both writing traditional contracts and producing standardized smart contract templates.”[2] So how will the use of smart contracts impact different industries?

Smart contracts could have a significant impact on the real estate industry, particularly in regards to landlord-tenant lease agreements and loans. Smart contracts can be engineered to confirm and execute lease agreements, pay and receive rent, terminate the lease, securely hold deposits, and pay maintenance fees. Once the contract and lease are terminated, the tenant will no longer be able to transfer rent payments to the landlord and the deposit will be returned.

Blockchain technology can also be used to trade and make payments on leveraged loans. Synaps Loans LLC, Credit Suisse and R3, a distributed database technology company, held a demonstration of a simulated leverage loan trade to exemplify how the technology can not only perform these functions, but also make the process faster and more cost efficient.[3] Emmanual Aidoo, who works with blockchain at Credit Suisse, explained that “Synaps now has the majority of the functionality needed to implement blockchain technology at scale in the syndicated loan market, which enables us to move into the final stages of development”.[4] Participants included Barclays, Societe Generale, the Royal Bank of Scotland and Wells Fargo, who “validated the premise that blockchain can be used to speed up interaction in the secondary loan market, from back-office functions like settlement and documentation to agent-bank duties like managing votes on loan amendments.”[5]

Smart contracts have also already proven to be an effective tool for business operations. Smart contracts operate on a blockchain, which transparently and accurately records and verifies all transactions. Because of this, the Spanish Bank, BBVA, used blockchain technology to carry out electronic trades between Europe and Latin America and processed 345 million securities worth over $1.5 quadrillion.[6] During this trial, BBVA noted that the document verification time went from 7 – 10 days to 2.5 hours. Using a digital ledger is significantly more efficient, making a significant impact on business operations and international trade.[7]

[1] Gates, Mark. (2017) “Chapter Eight: Ethereum, Smart Contracts and Decentralized Applications.” Blockchain: Ultimate Guide to Understanding Blockchian, Bitcoin, Cryptocurencies, Smart Contracts and the Future of Money.

[2] Mack, Olga V. (May 21, 2018) “Smart Contracts In The Wild: Applying Blockchain-Fueled Contracts Across Industries.” Above the Law. Available at: https://abovethelaw.com/2018/05/smart-contracts-in-the-wild-applying-blockchain-fueled-contracts-across-industries/?rf=1. Accessed on May 25, 2018.

[3] Fest, Glen. (April 3, 2017) “Bank consortium demonstrates leveraged loan trade via blockchain.” American Banker. Available at: https://www.americanbanker.com/news/bank-consortium-demos-leveraged-loan-trade-via-blockchain. Accessed on May 25, 2018.

[4] Ib.

[5] Ib.

[6] Op. Cit. n3.

[7] Sundararajan, Sujha. (Nov. 28, 2017) “BBVA Blockchain Pilot Cuts Time for International Trade Transactions.” Coindesk. Available at: https://www.coindesk.com/bbva-blockchain-pilot-cuts-time-for-international-trade-transactions/. Accessed on May 25, 2018.