Getting smart about smart contracts

Blockchain technology is generating significant interest across a wide range of industries. As the field of applications grows, industry leaders are customizing and tailoring the technology to fit very particular uses. Blockchain-based smart contracts—self-executing code on a blockchain that automatically implements the terms of an agreement between parties—are a critical step forward, streamlining processes that are currently spread across multiple databases and ERP systems.

For evidence of the growing spread of smart contracts, consider the following:

·         Smart contract venture capital-related deals totaled $116 million in Q1 of 2016, more than twice as much as the prior three-quarters combined and accounting for 86 percent of total blockchain venture funding;

·         An Ethereum-based organization has raised more than $150 million to experiment with and develop smart contract-driven applications;

·         The Australian Securities Exchange is developing a blockchain-based post-trade solution to replace its current system;

·         The Post-Trade Distributed Ledger Group, an organization launched to explore post-trade applications on the blockchain, has 37 financial institutions as members;

·         Five global banks are building proof-of-concept systems with a trade finance and supply chain platform that uses smart contracts.

While smart contracts in the commercial realm have not yet been proven, we believe that permissioned blockchains (those that are privately maintained by a small group of parties) in particular will find near-term adoption. And in this issue of CFO Insights, we will examine two blockchain-based smart contract use cases—(1) securities trade clearing and settlement and (2) supply chain and trade finance document handling—that carry important lessons for business and technology leaders interested in smart contract applications.