When was the last time you received a payment? Fire by bill? Waiting for your monthly salary only to realize it’s late again? You could relate to these headaches as an investor, employee or client. But the tension that affects each of these individuals is often due to one uninterrupted participant: the underlying traditional contract.
Contracts affect the workforce of each organization and 26% of employees are involved in managing those contracts at some point, according to the World Commerce and Contracting Association. With such a significant impact on a company’s contribution, these agreements should be in line with the rest of the company’s progress. Unfortunately, contracts are usually still left for human maintenance and execution by either of the parties involved, which can lead to quite expensive inspections and errors.
Blockchain-based smart contracts can improve business and stakeholder engagement, but as with most major corporate organizational changes, it’s important to do them right.
Connected: Hybrid smart contracts will replace the legal system
Work better, not harder
The current bargaining style is flawed and outdated, but organizations have done little to change it. Poor contract management usually costs companies at least 9% of their bottom line, which is a constant value leakage that can even reach a 40% loss, according to PwC. This loss of revenue comes from incorrect data entry, unpaid bills, business problems, incorrect reports and discounts – in fact all due to human error.
And accidents do not stop there. Infringements and unfulfilled contract terms can occur simply because the party in question is not on top of pre-determined contracts. This creates a whole lot of complications, such as friction between companies and their employees or external partners that are often left to lawyers. Agreements should provide clarity and reliability, not raise questions that require even more time and energy to deal with.
Companies can prevent these issues from arising by moving their contracts in line with the rest of their innovation. Smart contracts are stored on a blockchain and, unlike traditional contracts, are executed by blockchain programming rather than by an individual. So, smart contracts can enforce the terms of legal contracts automatically. This frees each party from remembering the contract and timelines, which ensures simplified and timely execution.
Smart contracts not only mean that the contract itself is smarter, but that everyone involved also works smarter. Without having to manage and meet conditions, people can focus on their actual work, which results in a more efficient and productive workforce. Employees, customers, salespeople and other parties on the payroll payroll do not have to chase after companies for benefit. And people can trust impartial code over an employer or business partner who could easily forget something or not have the other party’s interests in mind.
Connected: Clever agreements and laws: Technological developments challenge the legal community
What to watch out for
The fact that smart contracts can execute contracts without human action can be very beneficial for companies. But something that sounds too good to be true is often the case. Therefore, companies must safely use smart contracts to expand, rather than replace, traditional ones.
As with any contract, when there are loopholes in the contract, either party can take advantage of it. Bullet holes or oversights in clever contracts, which are present in an official ledger, can be exploited by outside bad actors. And we’ve seen it happen before: NFT’s creator Micah Johnson lost $ 34 million after an anonymous user took advantage of the smart deal when his NFT collection was launched. While losses of this magnitude are unlikely to occur between most employers and employees, other significant losses can be prevented by companies implementing smart contracts through a private blockchain.
Nevertheless, the worst cases of smart contract scenarios teach a valuable lesson about the importance of accuracy in making a smart contract. Ideally, a software engineer and a lawyer should work together to ensure that the basis of the agreement is sound and that all necessary legal precautions have been taken.
By working together in the early stages of creating a smart contract, a lawyer can ensure that pre-determined terms are clear, precise and agreed. In addition, the lawyer can ensure that a traditional contract is translated satisfactorily and accurately into the code of the smart contract. The software engineer can then create the code to execute the terms, reducing the risk with extensive testing to cover even minor flaws.
Smart contracts can change the way companies handle legal contracts and make payments, but they can also be a double-edged sword. It is worthwhile to spend a temporary period of time researching the correct ethics, in order to reduce any possible shortcomings, before implementing it. By doing so, companies can ensure that they are modernizing the basis of their communication and working smarter while doing so.
This article does not include investment advice or advice. Every investment and business involves risk and readers should do their own research when making a decision.
The views, thoughts and opinions expressed herein are the sole responsibility of the authors and do not necessarily reflect or represent the views and opinions of the Cointelegraph.
Tudor Vrabie is the co – founder, chief technology officer and project manager of SeedOn. He also founded HungryBytes in 2018, following his work as a technical manager and PHP developer at Grapefruit. Vrabie is a software engineer, web designer and technology enthusiast and uses his expertise to revolutionize the crowdfunding process.
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