Purpose - Demonstrate proof-of-concept for negotiating and executing a small-scale contracting job based on letter of credit within a blockchain network using smart contracts. Design/Methodology/Approach - Using Ethereum smart contracts, we model a small-scale gen- eral contracting scenario under perfect conditions. Execution is demonstrated with the Remix Integrated Development Environment (IDE). Findings - We show the feasibility of conducting a small-scale contracting job using smart contracts. The entire process, including job details, payment, and verification, can be conducted digitally. Originality/value - This research continues the efforts of previous research on letters of credit on blockchain but applies it to the general contracting scenario at small scale. Research limitations/implications - Further work is required to investigate variations in the assumptions, such as dishonesty and incompetence. Also, full-scale decentralized application is not explored here. Practical implications - This process expands the scope of current practices and tools, such as Angi, in a decentralized manner with blockchain. Social Implications - Full-scale adoption at the small scale is likely difficult due to disbelief in technology, cost, and resistance to change. Keywords: blockchain, smart contract, letter of credit, general contracting, contractor, contract. Paper type: Research paper. 1 1 Introduction Many homeowners encounter a situation that requires hiring a contractor to perform a job. These scenarios are typically one-time interactions between contractor (CTR) and client (CLT), involving smaller dollar values to process an exchange for a service. In many ways, this process resembles the international trade environment, where a seller and buyer interact to exchange goods. In fact, some of the same issues persist on a smaller scale. Given no previous history of interaction, there is an inherent lack of trust between CTR and CLT. A CTR has no guarantee of payment, while the CLT has no guarantee of quality. Internal enforcement options are limited; effective means are costly and time-consuming through a third party. The fallout from a failed relationship must still be dealt with by either party. Finally, there is considerable leeway with CTR credentialing requirements. In the state of North Carolina (NC), CTR licensure is only required if the total cost of the project exceeds $30,000 (NCLBGC, 2023 a). While licensure is not a safeguard against job dissatisfaction, it can provide peace of mind for the client in the form of CTR competence and knowledge of state building codes (City of Cary, NC, 2023). Likewise, there is no requirement for NC contractors to be insured (NCLBGC, 2023 b), nor are written contracts mandatory. A CTR has several means to address issues and protect interests, from proactive measures like addressing payment terms in a contract to reactive measures like filing a lien on a CLT’s property. While contract terms establish agreed-upon guidelines, they are not a guarantee of payment, and payment schedules are highly inconsistent across the contracting community. Liens can also be effective, but they do not guarantee payment either. The CLT’s proactive methods mainly include research. Public review sites like Google and Yelp can help provide insight into a CTR’s history. However, these ratings are often highly subjective, emotionally charged, and inconsistent. Furthermore, ratings and reviews are not always accessible for a CTR. Third- party (3P) services such as Angi, HomeAdvisor, and Frontdoor can provide access to a list of vetted CTRs. Some of these can even manage the payment process. However, these services are largely just connection routes akin to the digital white pages. Additionally, certain features and benefits are only available to those customers who are willing to purchase a membership. Most notably, these 3P services do not facilitate contract negotiation or execution. In terms of reactive measures, CLTs have traditional and non-traditional means to address breakdowns in the process. The legal system is always an option, but parties may find this route to be costly and time-consuming. Within NC, a CLT may seek administrative actions against a CTR via a state contracting board, but the board has no power to force work, reimburse funds, or recoup property (NCLBGC, 2023 b). Non-traditional means include intimidation and threats, along with crowdsourced pleas for assistance. Neither of these methods has a noteworthy history of success. Blockchain is a potential solution to address some of these issues with the contracting process. General blockchain design relieves pressure from trusting the other transacting party. All transactions are recorded, and the ledger is immutable, so a complete history is available at all times. Most currently accepted payment schemes are easily translated into smart contracts. Privacy can be adjusted as needed with the appropriate network type, depending on the requirements. Finally, blockchain provides the potential for a self-contained process through inclusion in a decentralized application (dApp). With these programs, all elements of the contracting process, including CTR research, credential verification, contract specification, payment, execu- tion, and termination, could be encompassed within one system. Additionally, this application highlights the exclusion of a 3P, although there is room to expand this concept with future research. We borrow the smart contracting letter of credit (LoC) framework from Chang, Chen and Wu (2019) to address the various functions of the small-scale contracting process. The LoC is a tool to facilitate international goods trading, touted as a secure, guaranteed form of payment (US Department of Commerce, 2023). Furthermore, this research builds on the work of Toorajipour et al. (2022) by exploring a potential use of blockchain technology to facilitate independent business transactions at a smaller scale. There is a growing call for this sort of expansion of blockchain research as it is currently focused narrowly on cryptocurrency and related financial transactions (Centobelli et al., 2021, Chan et al., 2023, Kimani et al., 2020, Pereira et al., 2019, Toorajipour et al., 2022). Thus, our paper proposes and models a new application area for blockchain smart contracts to address this critique, with emphasis on how the framework could be used to overcome the inherent lack of trust within contracting and how it provides alternative enforcement options to traditional legal avenues. Following this introduction, a literature review is provided to help understand the related research in- 2 volving contracts, including enforcement and incentive alignment. Afterward, a conceptual framework is presented for managing the small-scale contracting process based on the LoC smart contract design. Demon- stration of the process is shown through examples from the Remix Integrated Development Environment (IDE). Finally, suggestions for future study are presented. 2 Literature Review The literature review covers a broad range of topics. Some work is necessary to highlight elements of contracts, particularly with regard to negotiation. Other research provides background on business-related elements of contracts. Finally, we explore recent research on large-scale construction and trade. 2.1 Contracts & Negotiation 2.1.1 Contracts Contracts are commonly used to facilitate negotiation, so a short understanding on their characteristics is necessary. Bix (2012) identifies three elements required for contract existence: offer, acceptance, and consideration. An offer must be reasonably definite and not vague, and it does terminate. Accepted offers imply that parties have agreed to terms, which should appear on the same form (a different form, e.g., paper, may constitute a counteroffer and thus not prove acceptance). Even without a signed contract indicating acceptance, the following acts are generally sufficient to prove acceptance: sending or accepting payment, delivering goods, or performing service. While it is not required that an agreement be in writing, there should be evidence indicating an agreement was initiated. Of course, consent cannot be gained when under duress or subject to undue influence. Consideration marks the difference between contracts and gifts; with a contract, there is a promise to return something of value. 2.1.2 Enforcement Williamson (1996) argues that economic transactions are subject to opportunism, and hence contract pro- visions must safeguard against this threat; regardless of contract complexity, however, contracts are always incomplete as they fail to describe every possible scenario. North (1990, p. 54) states, “the inability of soci- eties to develop effective, low-cost enforcement of contracts is the most important source of both historical stagnation and contemporary underdevelopment in the Third World.” North (1990) continues about the problems with contract enforcement: •when enforcement is costly or not present, cheating and dishonesty are more appealing than coopera- tion; •the cost of providing enforcement may exceed the gains that parties can benefit from it; •standard game theory assumptions of perfect information and indefinite play are inappropriate for the real world in justifying self-enforcing solutions; •a sound legal framework is required to handle enforcement violations, coupled with a method for identifying punishment and incentives for carrying it out; and •enforcement is costly, but a third-party coercive body may use their power to to reshape markets in a way that creates perceptions of unfair advantages to some groups. Cannon et al. (2000) argue that while contracts are important for assigning obligations, their inability to adapt to environmental uncertainties allows parties to behave selfishly. Poppo and Zenger (2002) argue that formal contracts are complements of relational governance , a set of social exchange rules that control exchanges; with a higher level of relational governance, managers tend to employ more complex contracts. Others assess the efficacy of the legal system (Ho, 2001, Johnson et al., 2002, Shou et al., 2016), which is often associated with contract enforcement. Some authors examine trust in the presence of contractual control measures, where increased restrictions can lead to decreased trust (Malhotra and Lumineau, 2011, Zhou and Poppo, 2010). Bai et al. (2016) suggest 3 that a contract based on behavior only engenders buyer-supplier conflict because it is likely to arouse defensive attitudes; output-based contracts attenuate conflict because clear links exist between output and rewards. 2.1.3 Escrow Escrow accounts are another form of contract, typically between one or more negotiating parties and a neutral third party. Because smart contracts are used in this paper to hold funds, their functionality can be described in a similar manner to an escrow account. The term escrow refers to any account where funds are held and disbursed by a third party, with the most common usage occurring in mortgage lending (Mills, 1994). The use of smart contracts as escrow accounts is fairly standard practice, but research focuses on design differences. In particular, the use of a third party is of high interest due to the fact that blockchain’s original intent was to eliminate the need for outside verification. Zimbeck (2014) proposes one of the first strictly two-party escrow designs for cryptocurrency trading, called BitHalo. Within BitHalo, both sender and receiver are required to verify receipt of product off-chain; if parties do not agree, then all funds are burned (lost) (Zimbeck, 2014). Meng et al. (2019) propose Themis, another two-party escrow design, but parties seek arbitration from a group of peers on the network in the case of a dispute. Asgaonkar and Krishnamachari (2019) propose an improvement to BitHalo, whereby verification is performed on-chain, assuming the asset in question is a digital commodity that can be assigned a unique cryptographic hash. Schwartzbach (2021) proposes a two-party escrow design for any physical good or service that is based on game theory, but disputes are still resolved through an arbiter. In contrast, Goharshady (2021) argues that game-theoretic assumptions of simultaneous play in a two-player non-cooperative game are inappropriate for smart contracts; transactions are visible to other users, who can ruin the process with an extortion attack. 2.2 Negotiation Negotiation is as much art as it is science, and thus there is much research on the topic in other disciplines such as psychology, economics, and management. Early work focuses on game theory with standard assump- tions of rational behavior and self-interest (Messick and McClintock, 1968, Nash, 1951, Von Neumann and Morgenstern, 1947). Brett and Thompson (2016) draw on the earlier work of Walton and McKersie (1965) in describing four sub-processes of negotiation. Several authors refute game-theoretic assumptions because of the presence of trust, which promotes information exchange and affects risk-taking (Butler Jr, 1999, Kong et al., 2014, Mayer et al., 1995). Brett (2000) defines two types of negotiation—transactional and conflict resolution, arguing that there is a need for negotiators to understand the cultural differences between sides since these may impact the negotiation process. Emotions can also have profound effects on negotiation outcomes, such as anger, which generally causes retaliation (Friedman et al., 2004, Wang et al., 2012). Barnes (1981, p. 110) addresses a common manager assumption that the world is unsafe so a person should “adopt a position of pervasive mistrust to survive”; instead, we should search for paradoxical actions which counter these assumptions. The small-scale contracting environment presents scenarios that may be characterized by a power imbal- ance, suggesting that either the customer or the contractor has a greater level of power in negotiation or in enforcement. Fisher et al. (2011) argue that any agreement should be measured against a best alternative to a negotiated agreement (BATNA); negotiating power is determined by the attractiveness of a BATNA. It is also suggested to consider the opponent’s BATNA, although this is likely unknown. Some researchers examine the level of power in negotiation, with different behaviors along the power spectrum (De Dreu, 1995, Van Kleef et al., 2006, Wong, 2014). Negotiation involves cooperation, which in turn involves incentive alignment. Supply chains are classic examples of where failure to properly align incentives among key nodes leads to issues with performance (Biswas, 2011, Norrman and Naslund, 2019, Simatupang and Sridharan, 2005). Others explore incentive alignment of policy or structure adoption at the strategic level (Belfo, 2013, Lv et al., 2022). Other re- cent work uses game theory modeling of incentive alignment to develop solutions for two-party interaction (Haagensen and Debois, 2022, Heindel and Weber, 2020, Noorian et al., 2014, Wu and Wang, 2023). Additionally, blockchain adoption is another area of active research for incentive alignment. In particular, blockchain offers a more realistic environment in which to model situations that do not require such restrictive 4 conditions as game theory. Within a supply chain, some research examines how participants benefit from blockchain usage (Niu, Dong and Liu, 2021, Niu, Shen and Xie, 2021, Niu et al., 2022), while other work focuses on the incentives for adoption (Li et al., 2022, Rejeb et al., 2021). Clohessy and Acton (2019) study general factors for blockchain adoption within an organization, citing the following variables as pertinent: •Developed countries: these countries are likely to employ greater initiatives in promoting blockchain and incentivizing its use; •Remove the stigma: an association with the term cryptocurrency can carry a negative connotation, and organizations need to separate the concept from the improper use examples; •Management support: positive influence from the top-level leadership is a requirement, supporting blockchain research and initiatives; and •Large versus small: organizational size affects willingness to incorporate blockchain, with larger com- panies finding greater benefit; smaller companies struggle to find a need for blockchain and complain about complexity; acceptance is more likely if organizations are allowed to experiment with cost- effective solutions prior to adoption. 2.3 Human Behavior Several theories on human behavior help to frame our understanding of motivation and purpose in achieving desirable outcomes. Isaac et al. (2001) discuss expectancy theory, the idea that individuals act out of self- interest and their effort is tied to a belief in the level of performance attainable. Eisenhardt (1989) explains agency theory, where a metaphorical contract is used to govern the relationship between a principal and their agent; it also assumes that humans act out of self-interest, so most research aims to study the governance mechanisms that defend against agent opportunism. Alderfer (1969) proposes an adaptation of Maslow’s hierarchy of needs, which he calls existence, relatedness, and growth, or E.R.G. theory; humans’ core needs include existence—the obtaining of material and physiological desires; relatedness—the seeking of significant relationships with others; and growth—the search for opportunities to develop and reach full potential. Kaplan and Norton (1996) capitalize on the use of rewards to motivate behavior; they propose the balanced scorecard , a tool to link organization strategy to individual performance objectives typically using financial rewards. 2.4 Business Relationships The management of business relationships is widely studied, with numerous connections to entrepreneurship, economics, game theory, and much more. For business relationships that involve multiple interactions, there are several noteworthy studies, namely, in the realm of contracts and power. Baker et al. (2002) define the term relational contract to help explain the value of future interactions; “relational contracts cannot be enforced by a third party and so must be self-enforcing: the value of the future relationship must be sufficiently large that neither party wishes to renege.” Qian et al. (2020) explain that within established relationships, contractual execution and relational norms contribute positively to collaborative performance; legal enforcement has a positive impact on the relationship between contractual execution and collaborative performance. Xie et al. (2019, p. 1265) explain “where there is an interdependence relationship, there is a power conflict; where there is a benefit, there is opportunism.” Furthermore, when a buyer (in a buyer-supplier relationship) has a higher level of confidence in the legal framework, he/she is less inclined to spot opportunities for personal gain (Xie et al., 2019). Antia and Frazier (2001) reveal that contract enforcement is related to the level of interdependence among business channel members, e.g., a firm may benefit from a power advantage when its level of dependence is low because it is less concerned with consequences; a firm with a power advantage may have low interest in maintaining quality relationships. Kashyap and Murtha (2017) find that with a greater amount of enforcement completeness, there is a negative effect on franchisee compliance; in essence, this scenario yields a consummate compliance . 5 2.5 Large-Scale Projects Construction and international trade are two areas that have benefited from recent research on blockchain technology. 2.5.1 Construction Construction is a lively research area because of its numerous processes that warrant the study of optimization or efficiency. Much research is focused at the large scale, international level because of construction’s global reach. Some researchers explore the causes of payment disputes (Abdul-Rahman et al., 2014, Liu et al., 2019). More recent research sheds light on applications of blockchain technology to the construction process (Li et al., 2019). Ahmadisheykhsarmast and Sonmez (2020) demonstrate smart contract usage within a dApp that collects contract terms, estimates progress points and payments, blocks payments for 30 days, and releases payment to all personnel levels within a cascading payment system. Das et al. (2020) propose a similar interim payment system for a distributed construction environment, with emphasis on immutability and confidentiality. Others focus more on process improvements in construction. Celik et al. (2023) use blockchain to incorporate building information modeling (BIM) activities in construction for greater coordination of efforts. Wu et al. (2022) propose a similar blockchain BIM framework for modular construction projects, which exhibits reduced storage costs. Jiang et al. (2021) develop a blockchain framework that integrates Internet-of-Things (IoT) and cyber-physical systems (CPS); it results in improved information sharing and tracking. 2.5.2 International Trade International trade (and trade in general) is an area subject to trust issues. In particular, the finance asso- ciated with this trade is a source of enduring trust matters between banks and trading partners. Kowalski et al. (2021) find that blockchain technology can improve the security of transactions and improve commu- nication, but more research is needed to uncover how trust can be improved; blockchain alone is not enough develop trust between parties. In the accompanying survey, one interviewee states, “There is still a way that someone sends lead instead of gold. Blockchain can’t eliminate that, because one can always find oneself in a situation where someone sends something that resembles what has been stated in the contract but with a lower quality” (Kowalski et al., 2021, p. 5). Others focus more specifically on the LoC process and blockchain technology. Chang, Chen and Wu (2019) address the friction points with the LoC process and propose a redesigned framework using three smart contracts to manage documents, cash, and logistics. Toorajipour et al. (2022) also propose the conceptual design of a blockchain-based LoC process, but modeled as a pure peer-to-peer (P2P) transaction (no third party bank). Furthermore, Toorajipour et al. (2022) identify a need for future blockchain research to explore other areas besides those relating to cryptocurrency, suggesting an examination of business transactions. Chang, Luo and Chen (2019) conduct a review and note the benefits observed from using blockchain: transparency, ease of information transmission, traceability, dis-intermediation (removal of intermediaries), cost reduction, and the ability to incorporate the IoT. 3 Modeling 3.1 Framework As a trade finance tool, the LoC involves large amounts of money with new trading partners employed on a large-scale, international level. The LoC is often used in higher-risk situations when credit is poor or unknown; thus, the barrier to entry is also high due to the accompanying financial regulations. The LoC is deemed secure because it provides a payment guarantee, i.e. the process forces proof of trust when the shipping bill of lading transfers from the seller to the buyer’s bank. The bill of lading transfer is a requirement for the buyer’s bank to initiate payment (US Department of Commerce, 2023). Figure 1a shows the traditional LoC process; it begins after a contract is established between a seller and buyer (1). The buyer then applies for a LoC with their bank (2), which contains pertinent details of the shipment and payment terms. The buyer’s bank then sends the LoC to the seller’s bank (3), who then 6 reviews it with the seller for accuracy (4/5). The goods are then prepared for shipment (6), and the bill of lading (B/L) is prepared. The B/L is a legal receipt document describing the shipping contents and mode of transportation and delivery (U.S. Customs and Border Protection, 2023). The shipper provides the B/L to the seller (7); it is then transferred between seller and buyer banks (8). In exchange for the B/L, the buyer’s bank sends payment to the seller’s bank (9). The buyer must then pay their line of credit in order to receive the B/L (10), which is then used to claim the goods upon arrival (11/12). With this research, we consider the same LoC philosophy but implement the concept at the smallest scale between CLT and CTR. While typical domestic laws still apply, the barrier to entry with this process is low despite the same issues with a lack of trust. Figure 1b depicts the parallel idea with small-scale contracting. An agreement is made between CLT and CTR, the terms of which are typically enclosed in a contract. Here, we move those terms to a smart contract. Both CLT and CTR have funds tied to a bank; the parallel idea in the blockchain setting is that both parties are tied to a digital wallet with funds. We consider proof of job progress in the form of digital image submission as a requirement to transfer payment to the contractor. The image verification process mimics the B/L transfer in the LoC structure. 7 (a) Typical LoC process (adapted from Chang, Luo and Chen (2019)). (b) Small-scale contracting framework. Figure 1: LoC philosophy at large and small scales. 8 3.2 Methods We use Ethereum to design the smart contracts within a hypothetical blockchain network, but the image submission process requires some off-chain techniques. By design, blockchain is not intended to be a cen- tralized storage solution. Thus, for various memory and cost reasons, it is impractical to store large files such as images on the blockchain. An alternative option is decentralized storage, whereby a file is indexed by its content; a unique hash is assigned to the file (IPFS, 2023 c, Sen, 2023), which we can store in a smart contract variable (IPFS, 2023 b). The off-chain protocol employed here is the InterPlanetary File System (IPFS), although there are other decentralized protocols. For the purpose of this research, the CLT and CTR are both participants on IPFS. The CTR’s responsibilities include uploading digital images of job progress to IPFS, and storing the associated hash(es)1in a smart contract. The CLT retrieves the hash(es) from the smart contract, queries the IPFS network for the hash, and retrieves the image. In this implementation, IPFS uses a base58 encoding scheme, producing a 46-byte hash (IPFS, 2023 a). 3.3 Process Overview Figure 2 provides an overview of the proposed process. The entire transaction between CLT and CTR is conducted via three primary smart contracts. The contract descriptions below, described in general, refer to the numbering system within Figure 2. The circled letters in Figure 2 refer to a sequencing of steps; all other numbers are merely for reference. All three contracts will be explored in greater detail within the implementation section. 3.3.1 Scope of Work Contract (SoWC) The SoWC captures the job requirements and other basic information; it replaces the function of a tradi- tional written contract. In our implementation, a rudimentary set of contract details are included to show functionality, but this can be expanded to provide greater depth. Once deployed (1a), the CLT submits the job requirements to the contract with another set of basic details to initiate negotiation (1b). The CTR responds to the initial proposal with their capabilities (1c). The CLT can either accept or reject those terms after review (1d/1e); if rejected, the CLT may propose a new set of terms or terminate the process (1f). If the terms are accepted, the CLT finalizes the contract (1h), which simultaneously deploys an instance of the payment contract (2a). In parallel, the CTR submits credentialing info (1g), if applicable. For this project, credentials include a CTR’s license number and insurance verification. These are hypothetically verified via oracles (1j) against a state database (see assumptions). For example, a NC CTR license is a seven-character designation, e.g. L.12345. 3.3.2 Payment Contract (PC) The PC is the means by which funds are transferred between CLT and CTR. The CTR submits a stake to the PC (2c/2d) while the CLT submits payment for the job to the PC (2e, denoted as deposit ). Note, deposit andpayment are used interchangeably hereafter when referring to the CLT. The purpose of the stake is to keep the CTR honest, with the exact amount determined by the results of the credentialing check (2b) in the SoWC (1g/1j). If the CTR is credentialed (i.e. license and insurance = true), then the stake amount is low; else, the stake is higher. Both the stake and the deposit are blocked in the contract until certain conditions are met. The CLT deposit (2e) simultaneously deploys an instance of the job progress contract (3a). When the job is completed, the CLT deposit is released to the CTR (2f), after which the CTR may recoup the stake (2g). 3.3.3 Job Progress Contract (JPC) The purpose of the JPC is to manage the job verification efforts between CTR and CLT. This is analogous to the transfer of the bill of lading in the LoC process; payment is not transferred until the job is verified as complete. The JPC is deployed from the PC with only the CLT’s Ethereum account address; it is minimally 1Note: The term hash is lazily used here; the IPFS returned value is called a content identifier (CID). 9 structured because most work is performed off-chain. In Figure 2, the Image Contract (IC) is shown separate from the JPC, but this is merely for demonstration purposes; they are considered to be part of the same contract. The CTR uploads a digital image of the job progress to IPFS (5a), receives a hash (5b), and submits it to the IC (4a). The CLT can then retrieve the hash from the smart contract (4b). Note while it’s possible to manually retrieve the hash with a simple view function within the contract itself, this implementation automates the process with an off-chain script file (5d). The script file interacts with the chain by retrieving the hash and subsequently querying the IPFS network for the image (5c). If the job is complete, the CLT changes the jobDone variable to true (3c); otherwise, the CLT continues to recheck IPFS for updated images. When the job is verified complete, the CTR may access the CLT deposit in the PC (2f). Note, the payment is only released if jobDone is true. Figure 2: Overview of the LoC process for the contracting job with smart contracts. 3.4 Assumptions In order to model the single-use contracting job with a blockchain structure, we make the following assump- tions. 3.4.1 Necessary Scale: This project is intended for small-scale use in all applicable elements, namely cost, construction/job scope, and personnel involved. We acknowledge that cost is a real concern at the small scale, including blockchain transaction costs. However, we ignore the blockchain-related costs for this implementation. Oracles: The process of CTR credential verification is done via oracles which are used by the smart contract to select the appropriate stake amount. Oracles are not physically employed in this project but are assumed to be present. Image tampering: We are not concerned with digital image alteration; we assume that photos are not edited for nefarious means, and furthermore, the capability to detect such alteration exists. Metadata: The required image metadata in this implementation are GPS location and date-time stamp; see the previous assumption. 10 Cost amounts: Since ETH values fluctuate, the stake and deposit amounts are hard-coded with conversion rates as of May 2023. While APIs and conversion tools exist with smart contract integration, they are not employed here for simplicity. Node Usage: Both client and contractor are assumed to be participating nodes on IPFS. Banking: Each party is assumed to have funds tied to a bank or digital wallet; this connection ensures funds availability and is analogous to the link between shipper/buyer and bank in the LoC process. Security: While there are certain purposeful design elements injected to prevent some actions, this research does not design for security against attack. Proactive smart contract security measures are assumed to be employed here, but further work is needed to eliminate this assumption. 3.4.2 Simplification Power: There is a perceived power imbalance at the small scale in favor of the CTR, who has more accessible enforcement mechanisms (e.g. placing a lien on the CLT’s property, requiring prepayment for services, imposing interest on unpaid funds, etc.). Furthermore, cost favors the CTR in the sense that the CLT’s cost of enforcement is higher than the cost of performing the service (primarily due to the cost of legal action). CTR Stake: The purpose of the stake is to deter CTR malfeasance. The amount set in this implementation is arbitrary at 1 ETH and 2 ETH for the low and high stakes, respectively.2We assume that the amount is affordable for the CTR but high enough to be painful if the contract terms are not followed. Additionally, no negative actions dealing with the stake are explored in this base case, e.g. with CTR dishonesty, we may choose not to refund the stake. Blockchain Network Type: The setup lends itself to either a private or consortium-style network, with emphasis on CLT and CTR history remaining hidden. Access is permission-based so that no external party can interfere with the chain without approval. Furthermore, although this implementation is shown in Ethereum, i.e. native currency is ETH, the project scope should generalize to any blockchain network with a corresponding conversion to paper currency. CLT Payment: In this simple case, the client deposit is equal to the cost of the job; other payment amounts and options are not explored here. Participant Motives: Neither the CTR nor the CLT intends to deceive or cheat the other party. Thus, no options to deal with deceit are shown, e.g. withholding payment, diverting stake, etc. Trust: To align a LoC system at smaller scale, we assume that this CLT-CTR relationship is new and not a long-standing, positive relationship. Assume that there is a lack of trust between both sides. Pricing order: In this instance, the CLT proposes a budget before the CTR. Other cases may include CTR-initiated pricing, but that feature is not modeled here. Language: Although this implementation uses a combination of Solidity, Javascript, and HTML to demon- strate off-chain concepts, there are other specialized languages that can achieve the same end state; nothing here is prescriptive. 2As of 31 May 2023, 1 ETH ≈$1,856 USD; 2 ETH ≈$3,712 USD. 11 Contract Terms: The jobReturn() andjobCapability() functions are meant to capture basic informa- tion about the agreement between CLT and CTR. By no means is this intake process intended to completely replicate the design and body of a traditional written contract, but it is assumed that code can be adjusted to do so if required. 4 Implementation The following subsections demonstrate the use of smart contracts in this application. All smart contract testing was performed in the Remix IDE. 4.1 Scope of Work Contract The SoWC is depicted with greater detail in Figure 3; once again, alphanumeric