At a recent roundtable discussion1 on the topic Blockchains & Smart Contracts from an Enterprise Perspective, speakers1 answered many questions we are all curious about. Our author attended the event and wrote the following discussion outline surrounding the issues and what the future looks like.
- What are the promises and challenges?
- Who uses this technology today and who will use it in the future?
- How can entreprises massively adopt blockchains and smart contracts?
Smart contracts, one of many applications of blockchain technology, offer automated solutions to facilitate commercial transactions and optimize their implementation. Thanks to smart contracts an agreement between two parties can be established automatically based on structured databases and becomes self-executing based on a computer code running on the blockchain that processes transactions without the involvement of any intermediary party.
Blockchain and smart contracts save time, costs and can reduce potential friction between all external and internal stakeholders. The relevance of this technology from an enterprise perspective is therefore significant. Commercial transactions are at the core of an enterprise’s business and operations.
Promises and Challenges
Trust is the word most frequently used among the speakers at the roundtable.
Smart contracts can trigger a real upheaval of the meaning of trust, and unfortunately, an enterprise’s very first reactions might be to reject smart contracts. With smart contracts, the foundations of trust are moving from the classic frameworks of law and institutions to either the “community” for public blockchains or “trusted third parties” for private blockchains (e.g. banks, telecom operators).
But blockchain and smart contracts can actually create trust in what we term no-trust environments. Blockchain is a decentralized and encrypted storage and exchange technology that actually secures trading relationships between network members, even when trust does not exist. Information stored and exchanged in blockchain is transparent, identical and unalterable. This guarantees the reliability of transactions between network members in the absence of any institutional intermediary.
At the same time, and not surprisingly, blockchain is known as being the disruptive trust machine. Smart contracts created over the blockchain bring different types of challenges for the enterprise:
- Technical challenges related to security e.g. management of cryptographic keys and the control of the associated access rights; robustness of the overall architecture; and performance and interoperability with existing IT systems inside and outside the enterprise. (Interoperability is the ability of computer systems or software to exchange and make use of information.)
- Institutional challenges in terms of governance of the public or private networks established around blockchains. Governance is key especially for private consortia made up of diverse stakeholders that do not naturally trust each other – e.g. customers with competitors, partners, etc. Members need to work smoothly and efficiently together – without for example fearing improper information disclosure -- to supply their blockchains with the right data and to share them reliably.
- Legal challenges with regard especially to substantive law: e.g. contract law, IP law, data protection rules or antitrust law.
Contrary to what they seem to be, smart contracts refer to a technology and to any legal concept. The inalterability of the information stored and exchanged over the blockchain raises questions of compatibility with contractual concepts such as the “unpredictability theory” or questions of compliance with the “right to erasure” and the “right to be forgotten” under the GDPR for the protection of personal data at European level. The anonymous, open and decentralized nature of blockchain triggers further difficulties due to copyright protection of databases or the absence of any data controllers and data processors as defined under the GDPR.
Who uses this technology today?
One example introduced to the roundtable attendees was presented by the company Utocat.2 , which in collaboration with the insurance company AXA, established Fizzy, a blockchain system described in the article AXA going blockchain with fizzy.3 Fizzy is an automated flight delay insurance policy (smart contract) running on the Ethereum blockchain. The smart contract allows a customer who has suffered a flight delay of a specific duration to be automatically indemnified.
The smart contract makes this automation possible: the actual delay triggers the right to compensation and its implementation to benefit the insured without the intervention of any intermediary. As a guarantee of predictability and transparency, the smart contract makes it possible to simplify the insurance operation.
Fizzy partners with Flightstats4, a flight tracker that automatically dispenses data on the planned and actual schedules of flights or delays. The system involves the insurer, the reinsurer, the insured and the oracle, Flightstats, who gives reliable schedules.
Utocat2 also uses blockchains and smart contracts to ensure that legal documents are the latest produced ones and that the required signatures are present. In this way, customers are guided by filling out documents to ensure that the contract they sign includes the right information.
Another example presented to the roundtable attendees, was the system established by the company 14bis Supply Tracking5. This system allows the traceability of physical goods, digital assets and hybrids and can, in particular, track spare parts commonly used in the aeronautics industry. Equipment manufacturers and their customers - operators and airlines - can check usage of spare parts; their life cycle time; and their physical location or their delivery date.
The technology now makes it easier for operators and airlines to exchange parts in case of urgent need and allows companies to ensure airworthiness of aeronautical parts by automating the associated administrative procedures to therefore optimize flight safety conditions.
What about the future?
The smart contract is undoubtedly a disruptive technology marked by a very prospective dimension.
At the roundtable, the company Orange6 presented a vision of smart contracts including a platform that relies on a data lake7 and a graph of corporate knowledge. This platform, called Lexview, is aimed at organizing the implementation of solutions and services powered by artificial intelligence. Lexview also allows different process automations through the use of standard contracts and documents, and subsequently, blockchain mechanisms. This ecosystem will ultimately identify all transactions made by the company since its creation in a distributed and secure manner.
At the heart of the system, the graph of corporate knowledge allows a semantic organization of data around nodes connected by links. As an illustration, when the company wishes to sign a confidentiality agreement with another company, the graph allows to assemble the agreement for signature by linking the agreement model to the applicable law; to the different individual parameters of the agreement (for example, the effective date); to the territories involved; and to the persons having the authority to sign. The graph also allows to record signatures, to link the signed agreement to other contracts signed between the same companies; to the commercial elements of all of their joint projects, etc.
The added value of this solution extends beyond the company by allowing external exchanges, thus enabling different companies -- which do not naturally trust one another -- to interact and trade by sharing and recording transactions in a distributed, consistent and secure manner. As a result, this technology will trigger a new era of reliable, secure, graph-based, intelligent and self-executing contracts.
How can entreprises massively adopt blockchains and smart contracts?
All speakers were unanimously enthusiastic about the promises made by blockchains and smart contracts. At the same time, they were lucid as to what is necessary for this technology to mature in view of a massive adoption by companies.
The roundtable first highlighted the necessity to explain this disruptive technology to all relevant stakeholders, including contract and legal specialists, and educate companies on the topic. By doing this, it is essential to help companies identify specific needs that blockchains and smart contracts can successfully cover. Such needs must be put forward first, not the technology.
Speakers at the roundtable also highlighted the importance of simplifying the use of this technology to make access easier for companies. As an illustration, 14bis Supply Tracking8 uses a system that combines a tracking server accessible on the Cloud, and Application Program Interfaces (APIs) that can be easily added to the client's integrated management software, ensuring total interoperability without the need for massive data migration. In addition, the interfaces deployed at the outer limits of the centralized network allow any user to consult the status of tracked data.
For companies to massively adopt blockchain and smart contracts, it is necessary to find an adequate answer to all challenges raised by this technology especially in terms of interoperability with other IT systems – regardless of whether the challenges are internal or external to the company.
From a practical point of view, interoperability first requires that companies agree on common semantic rules around vocabulary and legal concepts to allow relevant information to be searched automatically within the data lake. Identifying a common semantic graph is certainly a complex task for companies.
Interoperability also requires that companies agree on web standards and standardized codes. The challenge is to make the graph interoperable with other graphs or with other online contract or legal resources such as Légifrance,9 IACCM etc. to show the graphs’ relationship.
This can only result from significant collaborative and coordination efforts among all economic players funded on a common vision.
These efforts are ideally supported by public and private initiatives, such as those sponsored by IACCM. Examples:
- The Accord Project's Consortium, which launched the first legal smart contract in 2017 based on a translation of contractual terms into an open and interoperable computer language, used between and within the companies, thanks to the contribution of all stakeholders. (Article: Accord Project’s Consortium Launching First Legal ‘Smart Contracts’ with Hyperledger)10;
- The Open Trust Fabric alliance, which was founded after the study commissioned in 2019 by the European Union to the IACCM and titled Modeling the EU Economy as an Ecosystem of Contracts (www.opentrustfabric.org)11. Its aim is to create an open and inclusive ecosystem of contributors who will demonstrate an innovative approach for both reporting the economy as an ecosystem of contracts and actually implementing it, connecting the legal, accounting and business functions into a united system. It, among others, seeks to identify opportunities for consolidation and standardization that could facilitate operational modelling, framework adoption and improvement in contracting.
The business model of blockchains and smart contracts from the enterprise perspective is actually still in its infancy, leaving the field free to new ideas that will become the essential concepts of tomorrow.
- Roundtable organized in Spring 2019 in Paris in partnership between the law firm, Taylor Wessing, and the IACCM, on the topic "Blockchains & Smart Contracts from an Enterprise Perspective”. Various French business and legal experts spoke on existing and future case studies, the associated challenges and promises as well as their impact on operational models and ways of working:
- Wendy Lawson, IACCM, Global Head of Advisory Services
- Ghislaine Gunge, IACCM Board Member & UnitedLex Enterprise Legal Services Director
- Clément Francomme, Utocat, CEO & Founder
- Xavier Lavayssiere, Ecan, CEO
- Eleanor Mitch, 14bis Supply Tracking CEO & Co-founder
- Thierry Perrouault, Orange, General Counsel, Legal Operations
- Marc Schuler, Taylor Wessing,
- Benjamin Znaty, Taylor Wessing
- Article: AXA going blockchain with fizzy© 2019 AXA Website All Rights Reserved (axa.com).
- 14bis Supply Tracking
- data lake
- 14bis Supply Tracking
- Article: Accord Project’s Consortium Launching First Legal ‘Smart Contracts’ with Hyperledger
ABOUT THE AUTHOR
Christine Pauleau, Senior Counsel, iConPerformance SAS, is an IACCM Council Member for France and the global Information and Communications Technology (ICT) industry and Telecom. She is a senior attorney qualified in France, Spain (PhD with award) and educated in German law. She has end-to-end legal practice across multiple jurisdictions with four years in a law firm in Barcelona and 18 years working in-house in the ICT industry for multinational organizations based in Germany, Middle East and Africa, and France.