Answers to seven frequently asked questions take the mystery out of blockchain technology and how it fits into travel today
As Web3 technologies become mainstream, the use of smart contracts is becoming more common. Though the term smart contract sounds self-explanatory, a basic understanding of what makes a contract truly smart is important to comprehend. As the name implies, smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met.
Sounds simple enough, but considering the fact that rules-based databases have been around for decades, how different are smart contracts? Do smart contracts require all data to reside on a blockchain? Do smart contracts require cryptocurrency? Why even use a blockchain based smart contract if a rules-based database can serve the same function?Do I Need to Understand Blockchain to Use Smart Contracts?
Blockchain is infrastructure technology. One does not need to understand the way electricity works to use it in your home. The same is true for blockchain: The only blockchain knowledge the average travel manager needs to know is that a blockchain is a highly encrypted database distributed across multiple computers making it more secure than centralized storage of data.
Corporate travel managers already possess the skills needed to develop the underlying rules around smart contracts. The core skill is an understanding of your company’s travel patterns along with, most importantly, your travelers’ pain points. This forms the foundation for developing a smart contract for your travel program.
For example, if the corporation changes its policy to require eight hours versus six hours to qualify for Business Class, all those travelers caught below eight hour threshold are feeling the pain, which could be offset by guaranteeing preferred economy regardless of loyalty status as part of a corporate bundle. How do Smart Contracts Work?
The process of transforming a contract into a smart contract seems straightforward: (1) Negotiate the terms, rules and conditions (2) Create the chain of events (3) Transfer the value to relevant parties (4) Record the settlement on the blockchain.
While an in-depth knowledge of blockchain is not necessary to use smart contracts, there are some key elements of decentralized technology that you should understand to appreciate why this approach is superior to a simple relational database. For a primer on Web3, take a look at Web3: What’s In It for Me? in the July/August issue of Business Travel Executive. You may also gain a basic understanding of blockchain technology by viewing my presentation at the 2017 Phocuswright Conference, available on YouTube.
Here are four characteristics of blockchain technology to keep in mind: 1 Blockchains are about the transfer of assets.
A supplier has physical assets (e.g., airplanes, hotel rooms, etc.) and soft assets (e.g., ancillary services owned by the supplier such as airline seats, boarding, amenities) or provided by third parties such as WiFi. Often negotiated corporate agreements reflect these two types of assets as two different benefits for corporate travel organizations: Hard savings in the form of discounts and soft savings that can take the form of upgrades, upgraded status, preferred seating, or favors and waivers.
It is important to recognize that transferring of these assets mirrors any transaction that transfers value from one entity to another, making blockchain smart contracts a natural for distributing soft traveler benefits. 2. Blockchain technology creates a digitized process that marries the transaction and payment process together.
This is essential concept to understand. Today, payments are handled by third parties, generally banks, that settle a transaction between parties but separate from elements of the transactions (e.g., booking a reservation). The value of increased settlement speed at a lower cost is a promise of blockchain that is still emerging.
For soft benefits, settlement is not the issue, but digitizing the content and distributing strategically to travelers at the point of sale is the key. Whether the soft benefits are in the form of certificates or simply a credit card with funds that can be used at the corporation’s discretion, ensuring that these benefits are used for the right traveler on the right trip can be challenging and smart contracts can help. 3. Blockchain ledgers are immutable, meaning that the elements of the ledger cannot be altered.
This prevents someone altering the smart contract and provides a shared source of truth for contract monitoring and performance tracking. Also, by putting the smart contract on the blockchain, there is less “vendor lock.” Simply put, if a more traditional approach of using rules database is deployed, dependent on who owns that database could mean a lack of portability of the contract when changing vendors. For example, putting your parameters directly into an OBT, TMC or GDS locks you into that OBT, TMC or GDS.4. Programming a smart contract requires a unique set of skills.
Working with blockchain technology does require a different knowledge set, but for the travel buyer, this should not be a factor as third-party technology providers can provide services that translate the rules needed for the smart contract into code on the blockchain.How Can Smart Contracts Deliver Corporate Traveler Benefits?
One of the misconceptions regarding Web3 technology is that the move to Web3 from Web2 will be like turning on a light switch. The reality of any infrastructure transition is that the process is evolutionary, simply meaning that that both technologies will co-exist and work with each other for the foreseeable future.
If you change the pipes in your home to something of lighter weight, more efficient and less prone to leaks, how you access water in your home does not change; you still need a faucet.
In that sense, how smart contracts deliver traveler benefits will initially be through current Web2 Online Booking Tools, provided these tools have the right underlying architecture to integrate APIs from smart contracts. Just to be clear, API refers to application programming interface and simply means a layer of code that allows other software to access its rules. Does Everything Need To Be on a Blockchain?
The vision of decentralized computing which is a core component of Web3 technologies is grounded in the idea of reducing the role of middlemen as gatekeepers of content and innovation as well as simplifying and accelerating the payment and settlement process. Web3 today is similar to the Internet back in the mid to late 1990s. There will be a day when a completely decentralized access to travel content and booking is available on the blockchain, but the core blockchain infrastructure will need to mature first.
The analogy with the early Internet can serve as an example. When the DOT.COM bubble burst in 2000 (not dissimilar to the recent crash in cryptocurrencies), the poster children of the crash were two companies: Pets.com and Webvan. There were a variety of factors that caused these companies to fail, but part of the problem was the lack of maturity of the Internet and logistics to support their company’s efforts. Today, I receive all my pet food from Chewy and with the recent pandemic, who has not received grocery delivery through services such as Instacart?Is a Smart Contract on a Blockchain Really Needed?
Relational databases first emerged in the 1970s. To access these databases, Structured Query Language, or SQL, was created to manage the databases and perform various operations on the data in them. Also associated with the growth of relational databases was the growth of rule-based systems that use algorithms with hand-coded rules that the machine follows when faced with any problem it is given. Though tools have emerged over the years to allow lay people to program rules, the fact that rules are coded makes these systems less flexible. Do Smart Contracts Require Cryptocurrency?
An important fact about Web3 technologies is that cryptocurrencies could not exist without blockchain technology, but blockchains do not require the use of cryptocurrency. Blockchain technology has the potential to dramatically alter the payment and settlement of travel, which would require the use of cryptocurrency in the form of stablecoins, coins that are pegged to a fiat currency such as the US dollar. But given the current immaturity of blockchain technology and the pending regulations around stablecoins, the application of settlement and payment technology for travel is still emerging.
So, the answer is no. For a corporation to use a smart contract, no cryptocurrency, such as bitcoin, is currently needed. As blockchains mature, we will certainly see new and innovative payment and settlement solutions driven by smart contracts.What Are Applications of Smart Contracts for Corporate Travel?
Below is a summary the types of contracts being used today between the corporation and its travel suppliers.
Clearly contracts run the corporate travel industry but implementation and measurement issues remain a challenge for many buyers. Smart contracts will not necessarily solve all the issues listed above, but with immutability, a shared source of truth and an innate ability to execute the exchange of assets based on an identified chain of events, the use of smart contracts can add value today to the corporate travel management process. How Smart Contracts Deliver
At the end of the day, a traveler will go outside of a managed travel program because of their belief that a better deal is available in the general market. This illustrates a basic flaw in the way corporate travel is managed today: The traveler is not recognizing the value of the corporate deal because it does not help solve their pain points.
The introduction of blockchain-based smart contracts provides a different approach to contract creation, implementation and measurement. By integrating smart contracts into the booking process, the corporation can programmatically deliver soft benefits to the traveler at the point of sale. This will help bridge this gap and demonstrate to the traveler the value of corporate negotiated bundles and soft benefits.
Now is the time to experiment with smart contracts to improve traveler experience, contract compliance and measurement.