3FOOD

Third Industrial Revolution Consulting Group
2.4 Smart contracts
A smart contract refers to a piece of software describing a complex process involving tokens
and participants, such as escrow, delivery vs. payment, and other common financial contracts.
An interesting aspect of smart contracts is that many can be enforced by The Blockchain itself,
instead of by a third-party institution. Smart contracts and tokenization promise to obviate
entire layers of market infrastructure by having the rules that govern the relationships between
issuers, owners and traders built directly into the covenants governing a blockchain. They will
form a quasi-legal and automated execution layer to usher in an era of programmable money
and open a wealth of powerful new applications to give investors greater confidence in the
execution of their claims and interests.
The rising interest in Switzerland-based Ethereum, which bills itself as a decentralized platform
for running smart contracts, speaks to how important this feature is becoming to the broader
applicability of blockchain technology. In particular, smart-contract capability will be important
to transactions within the Internet of Things. These automated transactions must be recorded
in a public, decentralized blockchain that’s secured through a robust, distributed consensus
algorithm; the complexity of relationships between devices in an IoT ecosystem means that it’s
not feasible to have a centralized platform mediate the transactions. (This reflects the
Ethereum platform’s use in a number of IoT-related trials.) 267 As Luxembourg explores sensordriven
“smart city” solutions to the problematic congestion and mobility within the capital city,
for example, it will need these decentralized smart contract structures to regulate the transfer
of funds between vehicles and traffic management systems. In Luxembourg’s finance sector,
too, smart contracts will be the foundation of new derivative and insurance contracts in which
payments are triggered by automated data inputs rather than adjudicated by an insurance firm
or some third-party institution.
To optimize the development of this technology, education will be vital -- especially of the legal
profession. An effort to translate these software code-driven contractual clauses into
something that is consistent with the analog world of existing law is needed. To this end, the
government is incentivized to work with bodies such as the Barreau du Luxembourg on
encouraging education for the profession.
267 Brody, P and Pureswaran, V, “Device Democracy: Saving the Future of the Internet of Things,” IBM, September
2014. http://www-935.ibm.com/services/us/gbs/thoughtleadership/internetofthings/
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