Smart Contracts Are Transforming Business—But What Happens When They Fail?

Smart contracts represent the touchstone of blockchain innovation in that they finally allow process automation and elimination of intermediaries-from finance to supply chain and real estate. Like everything else, though, these smart contracts are not perfect. What happens when they fail?

While traditional contracts are the sets of code for self-execution based on some predefined conditions, bugs may result in too costly consequences. For example, the DAO attack in 2016 – a bug in its smart contract – led to losses estimated at $60 million Ethereum worth.

Failures in those aspects can come from many different reasons, such as coding bugs, poorly written logics, or vulnerabilities in the underlying blockchain. Moreover, smart contracts are immutable-once deployed, they cannot be easily changed. It is this inflexibility that makes the fixation of unforeseen issues very hard.

Decentralized nature also makes dispute resolution harder once failures occur. Different from traditional agreements, there is nobody in the middle to intervene or roll back transactions. Moreover, this underlines very well the need for an audit, robust testing, and fallback mechanisms such as multisignature wallets or kill switches.

Smart contracts are, in fact, the revolution in business; this kind of solution is never of the type ‘one-size-fits-all’. Stated in other words, each business should consider these risks and benefits with caution and make investments in secure ways of development so that this innovation might be able to perform completely.