Have you ever heard of smart contracts? If you haven’t you’re probably thinking “contracts that are smart…duh.” We’re not saying that you’re wrong about that, but smart contracts are a little bit more than that good ol’ fashioned binding document.
While right now, they are most commonly used for supply-chain transparency and to quickly resolve challenges in vendor relationships, they can be a game-changer for freelancers and creatives...eventually.
What are smart contracts?
Smart contracts are programs stored on the blockchain that automatically execute on predetermined conditions once the agreed-upon outcomes are met.
According to Ethereum, “Smart contracts can define rules, like a regular contract, and automatically enforce them via the code. Smart contracts cannot be deleted by default, and interactions with them are irreversible.”
In the legal sense, smart contracts aren’t really contracts in the traditional sense. They’re rules that have been transferred to software. Smart contracts just eliminate the need to get lawyers involved because it automatically takes care of the process that would typically lead to a legal battle: payments.
Keep in mind that they are enforceable as long as the basic rules of contractual agreements are met.
Because of this, we recommend that you only use smart contracts for payment terms.
Never chase payments again
If you’ve ever freelanced then this section probably got your attention before the title did. We’ve all been there: you land a really cool client, they sign the contract, you work on their project for weeks, submit a beautiful draft, and—-your client is suddenly too busy to send payment.
Cue the ever embarrassing “Hi! Just wanted to remind you that payment is due…”
“Hi- Just a friendly reminder that your payment is a week past due…”
“Hi- I’m sure you’re really busy but I still haven’t received your payment…”
“Are you alive?...”
Because smart contracts run on if/then statements, you can ensure that you are paid at the project’s completion (or whenever you choose). They literally automate the payment process once your conditions are met so that you don’t have to send another one of those emails ever again.
For example, let's say that you are a graphic designer who just onboarded a new client. After your intro call where you determine your mutual terms and conditions, you can set those t’s and c’s as ‘rules’. Payment must be made at the completion of the first draft, revisions cost $X extra, etc.
The downside
Like any novel solution, there are always going to be a few drawbacks. In order to create a smart contract, you’re going to need to understand code, the blockchain, and crypto (or know someone who does). Luckily, there are solutions like Nem that are written in Java.
Another requirement is that you have an Ethereum account since the contracts live in the Ethereum blockchain. They do not work with flat currencies.
Both parties will have to be okay with doing business in crypto.
Not perfect, but a step in the right direction
While smart contracts are far from perfect, they’re a step in the right direction for small businesses and freelancers. How long do you think it will take for smart contracts to accept flat currency?
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