As the world is becoming increasingly digitalized, the business sector is entering a new phase of contractual automation. And what was previously deemed as a technological phenomenon is now finding its way into other areas of the global economy. Smart contracts – computer programmes running on top of blockchain – are becoming an effective tool to measure economic health according to modern economists.
The recent conference hosted by the Financial Times saw Trakti’s CEO, Luigi Telesca, engage with top-tier specialists to discuss the implications of immutable smart contracts for economies worldwide. The dialogue started from the research of Anglo-American economist Oliver Hart into contract theory who famously won a Nobel Prize in Economics.
As the Royal Swedish Academy of Sciences said during the awarding of Hart’s Nobel prize “Modern economies are held together by innumerable contracts”. The Open Trust Fabric alliance drew inspiration to model economic activity in Europe based on contractual activity.
Today, we continue this dialogue by examining the way Trakti’s technology has enabled the project and the impact of this research for businesses looking to better leverage their contractual data across borders.
Digital transformation can change businesses in 2021
The digital transformation saw companies facing the premise of going digital or falling behind. The cloud, which was considered an exotic and complex technologic advancement is now the default as companies are trying to work out how to migrate more of their applications as fast as possible to the cloud. Now, we are witnessing the same thing happening with smart contracts.
Large companies are already managing their contracts in a digital manner and most already have some type of CLM system in place. According to data from WorldCC Research in 2019 around 45% of organisations were selecting or replacing an automated system. That same research suggested that utilisation of systems was fairly rudimentary with most companies using the system as a document repository and very few using any full analytical capability. At the same time, research from the same source has shown that since the start of the pandemic, almost 80% of organizations are suffering moderate to severe impacts to their contracts and trading relationships as a direct result of Covid-19.
We have reached a turning point for contract management technology as it faces more pressure to solve the issue of constrained automation. The first step towards this is to rethink the current organisational structure, operating models, and measurement systems. In order for relational approaches to become the norm in any organisation, they need to move away from the traditional transactional approach to contracting – e.g. move towards greater agility and adaptability.
The real value of contracts is keeping economies together
As we embrace open data flows, recognizing supply “ecosystems” and using the contract as an operational guide rather than only as legal / compliance / risk allocation tool, we’re seeing the real value of contracts in keeping economies together. Contracts are the connective tissue in modern economies, as Oliver Hart says, and smart contracts have one considerable advantage – their transparency and immutability. This means that companies can rely on smart contracts for routinary administrative controls, benefit from greater automation, and focusing their attention on improving their relations rather than administrative tasks.
Businesses drive economies forward and increased standardisation and digitalisation of commercial contracts drive businesses forward. Smart contracts are the missing element that can deliver greater visibility of economic-level data from contracts across industries and markets, further promoting economic health.
Even in countries with the best institutions, court-enforced contracts have intrinsic limitations and paternalistic aims. But smart contracts allow us to make commitments — even with strangers — without government enforcement, something many, for hundreds of years, have assumed was impossible.
In the next few years, smart contracts will give people and companies around the world the power to make agreements with each other despite fragmented and broken boundaries, and so create new economies of scale.
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