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Rewiring the network: How smart contracts are driving the next phase in business automation

Wed 9 Oct 2019 | Amrit Kumar

Automation is typically associated with AI. But will smart contracts take business automation to the next level? Zilliqa’s Amrit Kumar investigates

In going beyond grains and gold, commodities have now taken on a new form in the age of personalisation. “Data is the new oil”, many have argued, and data has come to cement its position as the most valuable resource in the digital era.

From advertising to remittance, industries today benefit from the efficiencies offered by digitalisation, thriving on the seamless flow of information and the easy connections formed across stakeholders beyond borders.

Despite this ease, the next frontier appears to be in automation, as the resulting supply chain — across all sectors ranging from healthcare to finance, consumer goods to entertainment — has become hindered by the middlemen and third-parties.

With drawbacks ranging from hefty fees to an overabundance of restrictive processes, the diversification of service providers and the ability to connect with them appears to be a double-edged sword. It’s a classic case of too many cooks in the kitchen.

Enterprises have sought out opportunities for greater optimisation, afforded by the rise of technologies such as artificial intelligence, machine learning, and most recently, blockchain. In the case of the latter, the introduction of an immutable, distributed ledger coupled with self-executing agreements, known as smart contracts, looks set to catalyse the much-needed transparency, accountability, and efficiency in today’s business processes.

The elimination game

According to ITIC’s 2018 Global Server Hardware survey, 59 percent of respondents cited that human error was the leading cause of systems downtime.

Across an expansive network of devices and interconnected systems, the participation of intermediaries introduces additional points of error as much as failure, leading to an ultimately inefficient system bogged down by administrative tasks. The implications extend far beyond technical issues, entering the realm of security vulnerabilities as well as decreased cost-efficiencies.

Embodied in innovations such as smart contracts, we can eliminate the human element and opt to trust in concepts far more concrete: mathematics, code, algorithms. These self-executing or self-enforcing agreements are encoded with parameters that determine whether the terms of the contract have been met and can therefore be executed.

“Smart contracts provide us with the necessary assurances we need today in a world powered by global, digital enterprises, big and small”

The traditional paper-based sending and sharing of documents and the tiresome process of transferring, reviewing, and signing off on contracts has been a hindrance — allowing otherwise simple operational agreements to stretch out over the course of a few days. Smart contracts, without their reliance on third-parties, offer both a greater level of digitalisation and automation, allowing payouts to be resolved within a matter of seconds.

One area that would especially benefit from smart contracts is in programmatic advertising, where fraud is pervasive. According to cybersecurity firm Cheq, ad fraud will cost up to $30 billion in 2019 alone when accounting for indirect social and economic costs.

With blockchain, automation can go one step further, adding another layer of transparency and accountability to the digital supply chain. With smart contracts, settlements following campaigns can be automated based on contract parameters to ensure that only fraud-free, verified impressions are paid.

Decoding the fine print

When deployed on a decentralised blockchain, smart contracts add further benefits, as its code is immutable once distributed onto a network. In transactions that involve untrusted parties, fears of fraud or tampering can be mitigated, as a contract’s terms cannot be edited retroactively. Moreover, all transactions are transparently recorded on a distributed ledger, visible to all pertinent parties.

But beyond financial transactions and traditional contracts where parameters are fixed, what about situations where data sets are in flux? From financial markets to weather forecasts, these data sets fluctuate over periods of time and smart contracts strangely enough appear to be hamstrung by one of their value propositions––immutability.

What is the role of smart contracts in these scenarios? Middleware solutions, look to bridge the gap, by verifying the correctness and accuracy of the data as it is inputted into smart contracts.  Initiatives in this area are on the rise, ranging from Cornell’s Town Crier, a “high-test bridge” that allows the Ethereum blockchain to interact with online data sources, to Chainlink, a decentralised network of oracles that allows smart contracts to query multiple data sources in the real world.

Within a largely data-driven environment, this flexibility is crucial. While many argue that the ultimate pitfall of smart contracts is their structural rigidity when it comes to the encoding of terms and conditions, the growing prominence of middleware optimisations appears to be the defining factor. As they allow for real-time flexibility, such advancements are the key to the inherent long-term utility of contract automation.

As good as it gets

Across businesses, eliminating the middleman is far from controversial.

Long touted as the natural consequence of business model innovation, increased emphasis on forging direct connections with one’s consumers and users has always been prized over seeking out intermediaries, and for the most part, the same can be said across the supply chain.

So long as they are designed well, smart contracts represent the next phase in automation. After all, a contract is only as good as its terms. As advancements in the area of middleware solutions continue, we can hope to see technological infrastructures that can allow for enhanced process streamlining while redefining business relationships.

Underscored by greater security and utility, smart contracts provide us with the necessary assurances we need today in a world powered by global, digital enterprises, big and small.

Experts featured:

Amrit Kumar

President and Chief Scientific Officer Amrit Kumar

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