So it may now be obvious that there are some things that smart contracts are good at and some things
that they're less good at.
For me, the purpose of smart contracts comes from the world of automation.
So there's an awful lot of automation being developed in all areas of economic and non economic life.
It delivers a degree of speed and efficiency and ease of use.
And when it's done well, customer experience.
So automation, we we recognize in the legal community that most of the economic actors, most of the
clients that we're working with and supporting have an interest in automation.
It makes their business look better.
It makes their business run smoother.
It makes the business more efficient.
And the regulators have some concerns.
And I've got a history in working in digital money and virtual currencies where we've spent 20 or 30
years trying to take friction out of payments, take friction out of transactions.
Friction was always the word that clients and technical people use.
They want a smoother, quicker process.
Now, we've kind of achieved that to the extent where you can walk in and out of a store and the store
will read your face on the recognition system and it will automatically identify through the cameras
what you've taken off the shelf and it will automatically deduct from your account the value of those
goods.
What we've been aiming for for years, regulators are now concerned that there's not enough friction.
Are people going into the stores and knowing that they're entering into an economic transaction, that
they know that this is going to be debited?
Do they know how much is going to be debited?
Are they expecting loyalty points?
Are they expecting something that they that they're not getting?
And how do you surface the fact that a transaction has taken place?
So in this curious world at the moment where we look to take friction out of transactions, it's by
and large been done by automation.
We now have concerns for regulators and clients.
Do we need a bit more friction?
How do we make sure that people have entered into these transactions, these contracts that are voluntary
transactions, that the distinction between contracts and taught that they are volunteers to the transaction
they have intended to enter into an economic contractual transaction?
We're working on it.
But automation has brought the prospect of those benefits for sure.
And 5G is a good example of where a technical development is supporting this area.
So I talked about the sensors in the field in the case study around insurance contracts.
Likewise with the stores where you may go in and shop in this frictionless way.
So what 5G is delivering is much greater connectivity.
So we now talk not about communications technology that was phones and now about connectivity, phones,
the Internet of things.
All these smart devices and sensors all communicating automatically with each other.
They enable an environment where smart contracts can really develop and be a feature that you would
come across as a consumer, as a corporation, as an economic actor tens of times a day, moving potentially
in the case of large corporations to thousands and hundreds and thousands of times a day.
But the risk is, do we have enough ability for these transactions to be
consensual, voluntary and understood by the parties that are party to them?
So some questions, but it shows what smart contracts can do.
Conversely, there are some things that smart contracts can't do.
This might again be obvious.
I've talked about the if this then that clause of contracts that easy in the payments clauses, the
much more difficult.
In some other parts of a document, any contractual term that refers to reasonableness is difficult
for a smart contract.
How is that supposed to be turned into if this, then that?
So a contract that is written to give some discretion to the parties and say a party may not do this
thing unless it is reasonable for that party to do so.
If you have the context and you work in that industry, you work in that environment, you know the
two parties to the contracts and how they look at things and probably be a good judge of what reasonable
means in that context.
It's not something that we have computer systems that are good at doing, yet we're working on it through
a I and there's a lot of development work going on.
But currently, reasonableness, we just don't have the ability to pull the parameters out of the contract
and align them with the parameters in the context of real life, in the context of that transaction,
and get a system to run the team together.
Likewise for fairness.
Likewise for good faith.
So we've got a list of principles that lawyers and contracts have used for hundreds of years that just
don't fit in to this smart contract world yet.
They will do because we will start to see
more use of data developing closer definitions of reasonableness, more predictability around whether
a party would see something as reasonable or not fair or not good faith or not.
But for the moment, we exclude those bits from the smart contracts.
They live in the language of the traditional contract.
And that's why if we look at smart contract use cases, we see them in insurance, we see them in retail,
we see them in leisure.
We see them in lots of areas now of economic activity, but they tend to be a hybrid.
So what you'd expect is the payment terms to be turned into a smart contract, the rest of the contracts
to remain in writing.
And the two things work together as a hybrid contract.