Blockchain, often linked to cryptocurrencies and speculative bubbles, is moving beyond digital coins and is now serving as a backbone for trust and verification, tackling accountability challenges across industries.
For decades, letters of credit have been the financial backbone of international trade. These complex banking instruments guarantee that a seller will be paid once goods are shipped and verified, while buyers are assured they receive exactly what they ordered.
They give multinational corporations the confidence to do business across oceans and borders, knowing that a trusted financial middleman, the bank, stands behind every transaction.
But for small businesses and everyday people, such safeguards have remained out of reach. Engaging banks or lawyers to underwrite a modest import deal or freelance assignment is impractical, given the costs involved.
Instead, trust in small-scale transactions has often come down to handshakes, goodwill, and when things go wrong, messy disputes that sometimes end in court.
Now developers at North Carolina State University have adapted blockchain-powered smart contracts, digital agreements that automatically execute once conditions are met, to give small businesses or importers, contractors, and freelancers the same level of trust and security long reserved for global corporations.”Letters of credit give big businesses confidence to trade across borders,” says Brandon McConnell, an associate research professor who helped develop the tool. “But imagine if small businesses could tap into the same kind of assurance. Blockchain lets us do that at a scale that works for everyday people.”The university explained that at the heart of the system are smart contracts, self-executing pieces of code that run on blockchain networks.
Unlike traditional contracts that depend on trust, signatures, and sometimes lawyers to enforce, smart contracts are automated. They are programmed to release funds, transfer digital assets, or trigger next steps only when pre-agreed conditions are met.
Digital contractFor example, when a homeowner hires a contractor to renovate a kitchen, instead of handing over money upfront or relying on a verbal promise, the homeowner places the funds into a secure digital contract. The contract specifies milestone. Demolish old cabinets, install plumbing, finish countertops. As each milestone is verified, the smart contract automatically releases a portion of the payment.
If the contractor fails to complete the work, the money stays locked. If the homeowner refuses to pay after the work is finished, the contractor still receives what is owed. Neither party has to chase lawyers or go to arbitration; the contract executes itself.
This shift, says co-lead author Lt. Col. Mat Fukuzawa, could address one of the biggest problems in small-scale contracting, distrust. “General contracting jobs are notorious for misunderstandings and disputes,” he explains. “Today, the only fallback is litigation or arbitration, which adds cost and stress. Smart contracts could make trust the default instead of the exception.”What makes the tool particularly powerful is its flexibility. The team designed it to handle multiple layers of complexity. A single project can involve multiple smart contracts overseeing different aspects of the agreement, scope of work, payment schedules, arbitration, proof of licensing, or even insurance verification.
Once both sides sign, the blockchain records the entire agreement in a tamper-proof ledger. That record cannot be altered, which prevents either party from quietly changing terms or disputing what was agreed to later.
This design also allows for real-world messiness. Proof-of-concept tests showed the system can manage scenarios where contractors abandon a job halfway, clients dispute workmanship, or either side fails to meet obligations. Depending on the coded conditions, the contract can pause payments, return funds, or trigger arbitration.
AccessibilityThe difference is accessibility. Banks charge significant fees to underwrite letters of credit, making them viable only for large shipments of goods worth millions of dollars.
By contrast, smart contracts run at a fraction of the cost, making them practical for deals as small as a freelance design gig or a kitchen remodel.
That lowered barrier could open up an entirely new layer of financial security for small businesses. “This technology has practical utility across sectors,” McConnell says. “Contractors, designers, freelancers … people want low-cost assurance that everyone will keep their word.”For small businesses, which often operate on thin margins and cannot afford lengthy legal battles, this kind of low-cost assurance could be transformative. Disputes that once threatened livelihoods could be prevented or resolved automatically.
Freelancers, who frequently deal with late payments or clients disappearing, could work with more confidence. And homeowners taking on expensive renovations could avoid nightmare scenarios where money is lost to unreliable contractors.
The team behind the project has published two open-access papers detailing their design: Implementing A Letter of Credit Style Business Process for Small-Scale Contracting Using Smart Contracts and Mechanisms for Dealing With the Unexpected in Small-Scale Contracting Using Smart Contracts.
Although the potential is enormous, there is also the human factor. Not all disputes are clear-cut, and not everything can be neatly coded into software.
Quality of work, for example, is often subjective. That is why the researchers have built arbitration triggers into their system, allowing for human judgment where needed.
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