Which industries can benefit from smart contracts?

With Web3 on the horizon and digital transformation in the air, blockchain technologies such as smart contracts are becoming more common in business processes. Every company should ask how you can incorporate these technologies into your business model.

For context, a smart contract is self-enforcing code that exists on a blockchain and automatically performs agreed-upon actions when certain conditions are met. Most run on the Ethereum blockchain, although some use lesser-known blockchains such as Binance Smart Chain (BSC) and Polkadot. Smart contracts can be legally enforceable, although their legality depends heavily on the terms of the agreement. Most use cases do not involve industry standard legal terms.

While smart contracts can be useful for streamlining specific processes and can prevent contract breaches when executed correctly, they also have limitations and are unlikely to completely replace traditional legal contracts. Nevertheless, smart contracts have many different applications across different industries. Here are some of the industries that are either or could benefit from smart contracts right now:

1. Healthcare and medicines

The healthcare and pharmaceutical industries are subject to strict government regulations such as the Health Insurance Portability and Accountability Act (HIPAA) and the Health Information Technology for Economic and Clinical Health (HITECH) Act. Both regulations require healthcare organizations to secure electronic health information, making blockchain a great industry tool due to its fundamentally cryptographic nature.

Blockchain provides a fast and secure way to share patient information and can help healthcare providers comply with HIPAA requirements. Smart contracts in healthcare can also allow hospitals and clinics to share patient data with insurance providers, streamline claims processes and automate insurance payments, while providing patients with a better, immutable data stream about their health records and claims processes.

Clinical drug trials are another promising use case for smart contracts. Because predetermined conditions must be met for the contract to be carried out, researchers can use them to prevent ethical conflicts. For example, unless a trial participant reads and signs the correct consent forms, the smart contract will not release medical records to the researchers.

Many health-focused startups die in the “valley of death” when trying to bring new drugs or medical technology products to market. These inventors and entrepreneurs can greatly benefit from using smart contracts to raise capital from a wider investor base internationally, including from investors who are particularly interested in the startup’s research focus.

2. Music

Smart contracts are also useful for the music industry. Today, streaming royalties make up the majority of an emerging artist’s income. Music companies can simplify these royalty payments by using smart contracts. When fans stream music, the smart contract can automatically release the appropriate payment to the artist and label.

Tune.fm, a decentralized Web3 streaming platform, is a great example of how artists can use blockchain technology to generate revenue and build a fan base. The platform uses smart contracts to automatically pay artists every time someone streams their music, cutting out the record label altogether. Artists can also create and sell NFTs of songs, albums, videos and exclusive experiences directly to fans, allowing for more genuine, high-quality interactions between fans and artists.

3. Retail and e-commerce

Both brick-and-mortar and online stores can leverage smart contracts to streamline their back-end processes. For example, brick-and-mortar businesses can use smart contracts to automate time-consuming administrative processes such as payroll administration and contractor payments.

Retailers can also combine smart contracts and supply chain management techniques to hold logistics companies accountable for delivering on time and using verifiable quality products from expected origins. For example, a business can extend its supply chain visibility by assigning unique blockchain IDs to each storage unit. If their supplier were to deliver late, the smart contract could automatically trigger a penalty. And payments for international deliveries will not be released without chain verification of the country of origin and related purchasing priorities.

4. Financial services

Because decentralized finance (DeFi) is a big part of Web3, it’s no surprise that the financial services industry was an early adopter and is now a leader in blockchain technology.

The insurance industry is a good example. Because smart contracts automatically self-validate data across the blockchain, using smart contracts for insurance can help reduce the risk of fraudulent claims.

Peer-to-peer money transfers are another promising application for smart contracts in fintech. You have two options if you want to send money internationally using traditional money transfer services such as PayPal, Western Union or traditional bank transfers. You can pay a significant fee to send it in real time or process the transfer over a few days for free or a significantly reduced fee. Blockchain-based money transfer services such as Stellar and Ripple enable people to make instant, real-time payments with minimal fees, which can help facilitate international business.

5. Human resources

Although blockchain is still very new to administrative industries like HR, smart contracts have enormous potential to simplify some of the more tedious backend work and free up HR professionals to work more directly with people.

The most obvious use case is probably recruiting, as HR can replace traditional employment contracts with smart contracts to give new hires easier access to benefits packages. Instead of manually implementing the provisions of the contract, which often results in delays, a smart contract will automatically implement the benefits as soon as the trial period is over. And recruiting teams can require potential employees to use a blockchain-based due diligence service to verify their educational and employment credentials to avoid potential fraud.

HR departments can also use smart contracts to automate administrative tasks such as payroll processing. In addition to saving time, this application can save companies money by reducing the risk of human error in calculating payroll.

6. Property

There are so many potential applications for smart contracts in real estate that it would be difficult to review them all in one blog post.

Take tokenized real estate, which allows people to make micro-investments in a property by buying digital tokens that represent shares of the property. This scheme lowers the barriers to traditional investment and enables ventures to generate a lot of capital quickly.

Mortgages are another promising use case. Because data on the blockchain is self-verifying and immutable, decentralized digital ledgers can become a reliable method of recording credit scores and property transfers and liens. Lenders can use this ledger to determine their risk before creating a smart contract detailing the terms of the agreement. And skilled trading companies can easily place a lien on a property if the property owner fails to pay according to the terms of the service contract.

A smart contract can also help prevent missed payments by automatically transferring funds from your account to the credit institution and updating the blockchain accordingly. This way, you’ll have a verified, immutable record that proves every transaction happened on time.

On a less practical note, you can also use smart contracts to buy property in the Metaverse. It’s unclear exactly how far digital real estate will go, but the early adopters remain optimistic.

Can smart contracts benefit your business?

If you can find a realistic use case for smart contracts, your business can certainly benefit. However, whether smart contracts can be beneficial to your business depends heavily on your specific industry and business model. While you can do a lot with blockchain, it is far from a one-size-fits-all solution. A good rule of thumb is to ensure that the proposed use makes sense without blockchain technology involved.

Smart contracts are rigid and coded to execute automatically if certain conditions are met. The parties determine contract terms before sending them to the blockchain, where they are relatively permanent. If unforeseen circumstances make it impossible to fulfill some terms, it can be difficult to work with a smart contract. In addition, poorly written smart contracts can self-execute even if the conditions are not met, causing more damage and problems than a traditional contract, especially with parties contracting across state or international borders.

Collaborate with Harris Bricken on your smart contracts

If you have questions about smart contracts, such as what provisions to include in the contract and how to implement them, you should work with a qualified Web3 attorney. At Harris Bricken, we can ensure that your smart contracts are well written and avoid common pitfalls. We can also help if there is a dispute about a smart contract.

While smart contracts are still in their infancy, they have a promising outlook. Stay tuned for more on similar Web3 developments. We’re sure to see all kinds of new smart contract use cases emerge in the coming years. Contact Harris Bricken today!