This article is the fourth and final part of our coverage on the Bitcoin Conference St. Petersburg 2014. In the first article, we summarized the lecture given by Alex Fork. He spoke about the potential that Bitcoin has beyond it’s financial potential; Fork believed that Bitcoin was a cultural experiment, that it could advance society as a whole. In the second article, we covered Michael Chobanian’s speech, which was about the efficacy of Bitcoin organizations. According to Chobanian, organizations such as the Bitcoin Foundation play a vital role in securing Bitcoin’s place in the mainstream economy. In the third article, we provided a summary of Paul Shust’s presentation. Shust talked about the history of electronic money, and how regulators should treat Bitcoin.
In this article, we will cover the fourth and final main speaker at Bitcoin Conference St. Petersburg, Dmitry Zhuravlev.
Dmitry Zhuravlev: Bitcoin’s Potential for Improving Contracts and Payments
Dmitry Zhuravlev is the General Director of Human Factor Labs, a Russian firm that provides business data services.
From Human Factor Labs’ official website:
“HumanFactorLabs (HFLabs, LLC) provides customer data quality and customer data integration (CDI, MDM) solutions and services in Russia. Since 2005, HFLabs data quality software Factor is the most popular in banks, insurance and collection agencies. Customers include over 50 leading Russian and international companies operating in the financial services, telecommunications and retail sectors.”
In his lecture, Zhuravlev focused on the current risks involved in business-to-business (B2B) transactions, and how using Bitcoin with smart contracts could lower those risks and improve business efficiency.
The Risks of B2B Transactions
Business-to-business transactions are exchanges between two firms, in which one company is purchasing the services of another. An example of a B2B transaction would be a contractor hiring a window company to install windows in a new house. These kinds of transactions often happen on a contractual basis, which means that the exchange will last over a period of time. Therefore, the firm purchasing the service is generally required to pay at least a portion of the agreed upon price up front.
This B2B system, where firms have to pay before the contract is fully completed, is very risky. Anything could happen between the start and finish dates of the contract; workers could get hurt, the business providing the service could shut down, the customer could change her mind and cancel the project, etc. If any of those things happen, the firm that purchased the services of another firm and paid an upfront fee would lose that money.
Therefore, risk reduction is very important when businesses transact with each other. Upon the formulation of a B2B contract, the two firms may agree on various different risk reduction methods. Safety requirements for workers and payment plans are two common methods.
Bitcoin and Smart Contracts can Make B2B Transactions More Secure
Zhuravlev believed that Bitcoin could significantly improve the risk reduction capabilities of firms engaging in B2B transactions. Bitcoin allows users to send money to each other instantly, in small amounts, and in very short amounts of time. This feature allows for very fast microtransactions, which have recently taken the form of Bitcoin tipping on social media platforms.
By combining Bitcoin’s ability to facilitate micro-transactions with the emerging smart contract technology, and applying it to B2B transactions, could make B2B transactions virtually riskless — according to Zhuravlev. By using Bitcoin and smart contracts, businesses could contract with each other over a much shorter timespan. Instead of making one contract for the entire job, a new contract could be automatically generated every day until the project is fully completed. These drastically shorter timespans would allow installation payments to be made weekly, daily, or hourly, rather than in large chunks.
According to Zhuravlev, if such a system were to be implemented, there would be virtually no risk involved in B2B transactions. For example, if two firms used Bitcoin and smart contracts to set up a system of daily tasks for a project that would take six months to complete, the firm purchasing the other firm’s services would be able to pay for each completed daily task instead of making a large, upfront payments before receiving any service. Therefore, if any of the events that could happen under the traditional B2B contracting system were to happen under the Bitcoin system, the paying firm would not spend money on work that did not get completed. If the customer decided to call off the project after one week, the firm would have only paid a tiny fraction of the overall cost, rather than 30% or 50%. If the contracted firm decided to quit working on the project, the contracting firm would have only paid for the work that was completed, and would have the rest of its budget to sell the remainder of the contract to a different firm.
Thus, as Zhuravlev believed, a Bitcoin and smart contract system would greatly improve the efficiency and success of B2B transactions.
This concludes our coverage of Bitcoin Conference St. Petersburg 2014. What did you think of our coverage? Would you like to see a similar format for our articles on future Bitcoin conferences? Let us know in the comments below!