I just finished reading Joshua Gans’s blog post (https://digitopoly.org/2019/01/04/smart-contracts-with-fine-print/ ) which summarizes his article, “The Fine Print in Smart Contracts” (https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3309709 ) into a digestible bite. His contention (a generally held belief) is that smart contracts are automatic, i.e. a contract performance system needs “to provide hard evidence that an outside party would be able to use to confirm contract performance.” The supposition is that the system would detect an objective state that would permit the automated execution of payment.
Not just being a contrarian, but understanding the difficulty of constructing an objective mechanism capable of determining whether the terms of the contract have been satisfactorily completed, I have never assumed that the blockchain-enabled system would determine satisfactory completion of the agreement. Rather, I see such a system as facilitating the transaction by enhancing collaboration between the parties thereby reducing friction associated with the transaction.
We had plenty of experience with this at Textura. We observed considerable inefficiency in the conduct of payment processing between general contractors and their sub-contractors. Our supposition was that even if we did not provide an unambiguous agreement that was hardwired into the payment system, we would provide significant value if we could implement a process (supported by technology) that would make it easy for the parties to: 1) agree on the work to be done, break it down into bite-sized pieces and document it; 2) communicate during the execution and completion of the work; and 3) execute the payment electronically, once there was agreement that the work was completed.
Make no mistake about it, the agreements between contractors and their subs are complex beasts that are ambiguous (because of their complexity and singularity—another issue for another day) in their definition, i.e. there is plenty of room for interpretation, even in the most rigorously constructed agreements. And, we found that our clients (both contractors and their subs) derived significant value and greatly improved efficiency from the payment system (which incidentally also provided an authoritative accounting of work done and payments made without blockchain) without incorporating an unambiguous determination embedded in the context of the terms of the agreement as encoded on the system.
Just to be clear, this meant that the parties had to agree that the work was completed, which I would argue, and which Professor Gans’s paper (as I read it) supports, is substantially easier than trying to completely automate the transaction.
— you can find this (days earlier) and other posts at www.niden.com
and if you like this post: 1) please let me know; and 2) pass on your “find” to others.