Web3 Value? Looking at Smart Contracts.

NFTs may capture media attention, but it’s the underlying smart contracts themselves that can truly generate value for companies.

Let’s start by setting the stage for today’s article. This piece is being written in mid-July 2022 which means pretty much one thing. Prices are down. Cryptocurrencies are down, stock markets are down, and relevant to those focused on NFTs the average prices for any kind of digital asset tied to a blockchain are pretty much down. The good news? It doesn’t matter, for two reasons really. First, the perceived market value of any enterprise will ultimately always be a function of inherent value plus speculation. Speculation may be deep in the red, but the underlying value of blockchain technology is constant. More importantly, though, any value observed from price appreciation pales in comparison to the potential to be gained through thoughtful implementation of one specific piece of novel underlying technology.

This is where smart contracts come into play.

Past the scope of an immutable ledger and non-fungible tokens that represent ownership over assets, smart contracts represent a much larger use. They enable the blockchain to do something. Everything from transferring tokens (fungible or non-fungible) or defining ownership parameters to automatically distributing asset-generated dividends are defined by a smart contract. In other words, these are the engines flying the jet.

From a developer standpoint, smart contracts are simply a piece of code reliant on if/then logic that when deployed, become immutable. These can be written in a number of languages from Solidity to Vyper to Fe. They can also be represented by a variety of common forms including ERC-721 and ERC-1155 which are all supported by Metcy’s APIs. Ultimately though, the main takeaway is that these contracts are executed exactly the same way, at the same time, every time.

For example, let’s say a singer created an NFT to represent ownership of their song. The sale, transfer, and right to use that song could be easily governed by a smart contract. The contract could stipulate that every time the NFT was sold, 5% of the proceeds would go to the original artist. No matter what. The singer doesn’t need to know when their song is being sold or by whom. They will just collect royalties. This is all dictated by the contract.

Yeah, so what?

Well, that is not such a bad question, but the answer is ultimately worth potentially billions of dollars. Today, the music industry is defined by complex contract laws that are cumbersome to create, difficult to enforce, costly, and ultimately beneficial for very few. There are nuances that can be exploited and a lack of transparency that makes establishing counterparty trust difficult. Artists rarely make a significant profit from their work. A smart contract governing song rights could go a long way to fixing that. Musicians aside, the business implications are sizeable. The number of resources poured into the enforcement and creation of legally binding contracts by companies is massive.

Smart contracts change all of that.

From security settlements to class action payouts and everything in between, binding agreements are the backbone of trade and commerce in today’s society. Once a smart contract has been created there is no easy revision. Better yet, because the contract is enforced by all nodes on the chain, in effect by the master computer, there is no cheating. Terms are struck transparently and committed to indefinitely. As those negotiating terms in business know, this is a far cry from our current systems of operation. Smart contracts have the potential to add substantial value to the way we do business and are arguably one of the most transformative applications of blockchain technology.