Smart Contracts: Blockchain Value Generators

Virtual currency is a high-profile iteration of blockchain technology, but the strength of the technology lies in the data and relationships created in blockchain systems. The reason it is possible to integrate cryptography and decentralization into a currency is because of the inherent reliability of the data created by the immutable system. Blockchain technology is so strong we can build a monetary system on it. Now what?

The Bitcoin Experience and the Art of the Deal

The Bitcoin experience has shown that virtual currency is possible. Bitcoin also shows that the value of digital currency will be volatile, possibly ephemeral, so long as it is based only on user and investor confidence. In a blockchain system, the value is in relationships. Transactions are the foundation of the Bitcoin system and a transaction requires a relationship. Smart contracts are the relationship makers and the value generators of the blockchain world. As I develop smart contracts, I gravitate toward the art of the deal, especially transactions involving leased property and real-world collateral. These are legal tools that form reliable business relationships and allow commerce to flow.

Leases and Security Agreements: Value-Generating Smart Contracts

Leases and installment contracts harness worker effort and pour it into the financial engine. A lease or installment contract creates a relationship around an asset, a unit of human productivity. That relationship itself then becomes a thing of value for the holder of the contract. Contracts are relationships with user-defined rules and parameters. Once that relationship has been reduced to a written object that has predictable effect, it becomes an asset with a degree of liquidity and an income stream. It can be bundled and traded. If a contractual relationship does not have rules that can be enforced or relied upon, its value in commerce is negligible.

Contracts allow money and things to move. Every level of commerce uses leases and security agreements. For example, in the automotive industry, security agreements and leases enable every level of production and trade, from mining equipment and manufacturer purchase of steel to financing dealer floor plans and selling or leasing a car to a human. Contracts for the sale and lease of products are how we put the value of human productivity into a system.

It is difficult to predict today exactly what place virtual currency will hold in the future, but its best chance for success is articulation of the architecture that allows users to craft flexible, reliable, enforceable blockchain smart contracts, things of inherent value.