Billions of contracts are entered into each year. They help with everything from buying homes and energy to business transactions, and sit at the heart of many of our everyday activities.
What if there was a way to make them more intelligent and useful?
Smarter contracts offer a new way of contracting. They are legally-binding digital contracts that use technology to provide benefits over conventional contracts. They range from simple applications like electronic signatures, all the way through to sophisticated self-executing smart legal contracts.
At all levels, smarter contracts enable increased efficiency and productivity, greater trust and transparency, and reduced risks of fraud.
The technology will benefit SMEs by standardising contracts in numerous areas: examples include employment, insurance, supply and distribution, credit, tax and intellectual property matters, and more.
Growth of blockchain technology
The rapid growth of blockchain technology is one key factor helping to accelerate a smarter way of contracting. Blockchain is a system of recording information in a way that not only makes it practically impossible to change, hack or cheat the system, but also disincentives dishonesty.
Smarter contracts on the blockchain allow transactions, ownership transfers and the like to be tracked and guaranteed in a way that is transparent. The fact that the legitimacy of the record cannot be challenged is significant for individuals and businesses. It reduces the risk of legal challenge. The blockchain is now at a stage in its development equivalent to where the internet was in or around 1995, demonstrating its potential for enormous growth.
Smarter contracts are already being used in a wide range of financial and industrial applications. They are being used to speed up and simplify the process of buying and selling property in the UK, to reduce friction in global trade and transform logistics operations.
LawtechUK has launched a major project that shows exactly how widely smarter contract technology is already being used across commercial, financial and consumer sectors. I believe that LawtechUK and its UK Jurisdiction Taskforce has played a vital role in showing how new technologies are being applied already and how they will develop in the future.
3 developments
Looking ahead, I believe there are three main developments that will accelerate the rollout of smarter contracts and blockchain technology and bring them into the mainstream of economic, business and financial life.
First, the launch of wholesale or retail central bank digital currencies and asset-backed stablecoin. The government has already announced its intention to legislate to bring certain stablecoins into the UK payments framework, to facilitate growth and expansion for issuers and providers.
The second development is the use of digital transferrable documentation such as electronic bills of lading and electronic bills of exchange.
Thirdly, I expect that there will be exponential growth in the use of digital commercial documentation and structured data in place of analogue applications such as Word and PDF.
The use of blockchain for share ownership and land and intellectual property registration would be transformational. Smarter contracts on-chain would allow tax and customs duties to be levied seamlessly as transactions occur.
Urgency needed
There must be a sense of urgency about the roll-out of smarter contracts because other jurisdictions – such as Australia and Singapore – are already focused on these advancements. Smaller jurisdictions can be more nimble, but the UK is one of the world’s most highly regarded legal jurisdictions.
There is a big prize in positioning English and Welsh law and the UK’s jurisdictions as the first choice for international business using new technologies.The UK should be in the vanguard of these developments. We all need to prepare for the rapid uptake of smarter contracts, which is happening now and will accelerate sooner rather than later.
My hope is that English and Welsh law will prove to be the most valuable foundation for borderless smarter contract technologies as they grow exponentially in the months and years to come. The Law Commission is moving fast to provide advice and draft bills to government to prepare the legal infrastructure in the UK for the growth in the use of blockchain technology and smarter contracts.
Businesses looking towards the future will want to be prepared for this wave of technological development. Smarter contracts will transform everyday transactions for consumers and SMEs.
We will all, I hope, embrace these new opportunities to bring greater efficiency, security and trust for individual and business transactions.