Service level agreements (SLAs) add additional complexity to any process. The terms and conditions of SLAs often create confusion and require additional resources to maintain. Smart contracts that depend on blockchain technology can help businesses with SLA management. This new technology can increase business efficiency, provide better security, coordinate complex projects and improve customer satisfaction.
Understanding Blockchain Technology and Smart Contracts
The blockchain technology is the backbone that has made cryptocurrencies possible. A blockchain is a digital ledger. It uses cryptography to maintain records of information. Multiple copies of the same ledger are distributed throughout the network. Users can record their transactions on this ledger or blockchain.
Individuals or data centers that provide computational power to blockchains are called miners. When the users of a blockchain broadcast their new transactions to the network, the miners compete against each other to add these entries to the ledger. Due to complex mathematical calculations, the task of adding a new transaction is computationally challenging. Miners get rewarded with blockchain tokens or coins for participating in the calculations. Even though adding a record to the blockchain is complicated and time-consuming, verifying the record on the blockchain is easy and fast.
Every block of the ledger is dependent on the previous block. So even if a single bit of the ledger is manipulated, the user of the blockchain can easily use the verification process, detect the discrepancy, discard the bad copy and get a more authentic copy from the network. This property makes it impossible for any single party to manipulate data on the blockchain. So the process creates a trustless transaction model where two parties can exchange value with each other without the necessity for any trusted third-party. In a traditional transaction, banks, financial institutes, and governments play the third-party role and maintain the ledger. Because nobody can change records on the blockchain, there is no need for the third-party.
Smart contracts are at the next level. They are built on top of the blockchain. It is a contract that is written in code. In a smart contract, two parties can write a code-based agreement that will trigger predetermined events as certain conditions are met. For example, party A will get amount X from party B when party A supplies Y amount of a product. Even though smart contracts cannot help with all SLA cases, it can work as a tool to automate a lot of mundane SLA tasks.
Businesses that provide complex IT support need well-defined SLAs. The service level agreements help businesses in the following ways:
Implications of Smart Contracts on SLA
Even though SLAs provide benefits, they still require a lot of human support. If there is a dispute, the business has to answer customer inquiries. For example, if a cloud service provider agrees to an SLA of 99.95% availability within a region for the whole year, a single outage might not breach that SLA. But still, the provider will end-up answering queries from a lot of customers. If the provider automates the SLA using smart contracts, then customers will get refunds automatically in case of a breach. The cloud provider doesn’t need to waste time and resources answering queries after every outage from a large number of customers.
Smart contract or blockchain-enabled SLA management can help companies in the following ways:
IBM and Bank of Tokyo are using a blockchain pilot program to automate their mutual business transactions. IBM has been investing heavily in the technology. It has made significant progress in blockchain-based supply-chain and logistics. So this pilot program to improve service level agreement in multi-party business interactions will provide a new path to improve efficiency and accountability. IBM will use IoT sensors to monitor its IT equipment delivery to Bank of Tokyo and record it on a blockchain. The project is using Hyperledger, an open-source blockchain platform. Later, IBM intends to increase the scope of the pilot to trigger automated invoicing and payment processes. Similar automation can benefit other businesses too.
Businesses considering blockchain-enabled SLA management has to consider the security issues related to both blockchain and smart contracts. Blockchains are very reliable. Bitcoin blockchain has been recording transactions since 2009 without any data breach. But smart contracts are a different story. They are individual computer codes and like any other codes, they can have bugs. But as more companies start adopting smart contracts to fulfill their SLAs, there will be more standard templates and thoroughly-tested code bases available. As these templates and code bases mature, blockchain-enabled SLAs will provide more secure transactions.
Smart contracts can help companies deal with complex outsourcing situations. It’s easier to manage contracts and outcomes between multiple parties with blockchain-enabled SLAs. The distributed nature of blockchain means that everyone can have visibility into the work taking place. There is no need for a central authority to manage all the rules of engagement.
Blockchain-enabled contracts or smart contracts will not replace all service level agreements but they will play a significant role in automating parts of the SLAs in the coming years. Also, due to the rising interest, developers are looking for better ways to audit smart contract codes. Quantstamp has created a smart contract security-auditing protocol. More developers will probably come up with similar solutions to improve the quality of smart contracts. As the quality improves, more businesses will start using blockchain-enabled SLA management.
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