How smart is a smart contract?

The reality is, they are only as smart as their creators.

Smart contracts were first introduced to the space by Nick Szabo as “self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code” as seen in Investopedia. Szabo was also the one who invented a virtual currency called Bit Gold back in 1998, way before Bitcoin. This has led some people to think he may even be the real Satoshi Nakamoto or at least, that Bitcoin’s protocol was inspired by Bit Gold’s.

Nowadays, smart contracts are still not “smart” per se. This means that these contracts can’t learn -yet-. So in general terms, we are talking about a contract that is programmed to automatically execute itself once the terms proposed are met by the parties involved. These contracts exist in the blockchain ecosystem that provides the technology and transparency for them to function and provide confidence to all parties.

Smart contracts are in turn the underlying technology that paved the way for another innovation: tokens. They come in many different shapes and colors, actually, they can represent almost anything you can imagine -physically or digitally-. One of the most popular tokens nowadays are the NFTs or non-fungible tokens and their representation of art pieces. Another very popular use are the security tokens that are actually a digital representation of a regular security. For us at BRET Real Estate Tokenization they represent equity on a physical asset like a multifamily building or a warehouse in the U.S.

But going back to my initial question, people all around the world have found many different ways to leverage smart contracts and in turn, tokens. Such is the example of dexFreight, a logistics company that uses NFTs to digitize all the contents of what a traditional logistics invoice would be.  Their solution comes to the problem of the traditional 90 day payment to transportation companies. In order to create liquidity, once they digitize the terms of an invoice, tokens are deployed to secondary markets where there’s a pool of investors that can choose to purchase that token at a small discount. This allows higher liquidity to transportation companies as well as leaving the 90 day window open for the counterpart paying for the service. This is very similar to the “factoring” process, except for the higher efficiency and decentralization blockchain technology provides.

In the end, smart contracts are becoming smarter as the ideas behind them do as well. We have seen many use cases in real estate as well at the point of fractionalizing a property and automatizing dividend payments to investors, no matter where they are geographically. Little by little, decentralization is allowing higher confidence from both the investor’s perspective as well as the issuer’s. As no one can alter a smart contract once it’s deployed, I know that as long as I come through with my part of the deal, I will receive my payment or the other way around.