Imagine placing a bet online and receiving your winnings before you can even refresh the page. Or a cross-border crypto trade settling instantly without any third parties, or red tape. How about an FX deal that executes the moment market conditions hit your target.
These are all extremely possible scenarios with smart contracts. For high-risk industries like crypto, gambling and forex, they offer something some may call invaluable. They offer speed, automation and built-in trust.
Instead of relying on manual processes or external intermediaries, smart contracts execute themselves when certain conditions are met. This happens without delays or disputes. Just code that does what it says it will.
Last year, the global smart contracts market was valued at $2.14billion. By the end of this year, it’s expected to hit $2.69billion, and by 2032, a staggering $12.07billion.
However, while adoption is increasing, there’s a risk that’s hiding in plain sight. Because, like most things, without regulation built into the design, smart contracts may end up doing all the wrong things, really well.
What are smart contracts?
Smart contracts are digital agreements. They’re written in code and stored on a blockchain, (which is essentially like a shared digital ledger). This ledger is secure, transparent and can’t be changed once something is recorded.
When we say smart contracts ‘live’ on the blockchain, we mean they’re built into it. They aren’t stored in one place but instead copied across a network of computers. That means no single person or company controls them. Everyone in the network can see that the contract exists and what it says.
Once the rules in the contract are met, the contract runs itself, automatically with no lawyers, no emails, and no chasing people down.
How do smart contracts work?
Smart contracts follow simple logic. If one thing happens, then another thing should follow. If a payment is made, then release the goods. If a score is verified, then pay the winnings.
These ‘if this, then that’ rules are written into code. That code is saved on the blockchain, across thousands of computers. When the contract’s conditions are met, those computers all agree it’s valid. Then the contract executes the next step, instantly.
Smart contracts can do all kinds of things:
- Move money between parties
- Send alerts or updates
- Register ownership
- Approve access
- Issue documents or tickets
Once a smart contract completes a task, it’s recorded on the blockchain. That record is permanent. It can’t be edited.
The promise for high-risk sectors
High-risk industries tend to have a high-speed, high-stakes, high-reward ethos. This just means that they deal with large sums of money, fast-moving markets, and tight regulations.
Smart contracts offer real value here. Here’s how:
Automation
Smart contracts remove manual steps. For example, in a traditional payment process, someone has to check if all conditions are met. They review contracts, verify invoices, approve payments and then release funds. That means people spend time on back-and-forth emails, phone calls and paperwork. Each of these steps also comes with the risk of human-error also, as unfortunately, unlike new-age technology we’re prone to this.
Smart contracts automate all that. They check the rules instantly, verify data and trigger payments automatically. No one has to manually confirm anything and this, in turn, speeds up the entire process and minimises the risk of mistakes.
Trust
As explained earlier, every action is recorded on the blockchain. No one can change it. No one can delete it. That kind of transparency builds confidence, especially in sectors that often face a lot of scrutiny. It also helps prevent fraud, because everything is trackable.
Speed
High-risk industries tend to move a lot faster than their lower-risk counterparts. Take crypto trading. Prices can change in seconds. If a payment or trade takes too long to settle, you risk losing out or missing the best deal. Or, CFD brokers who depend on real-time market moves and must execute the moment conditions are right, or the opportunity is gone.
Smart contracts settle payments and transactions instantly. They keep up with the speed these industries demand. That means faster cash flow, happier customers, and fewer missed chances.
In short: Smart contracts cut out delays, cut down costs and cut through complexity. And for businesses in high-risk sectors, that’s extremely necessary.
The risks without regulation
Smart contracts are software and, like all software, they can have vulnerabilities. Here are just some of the challenges that come with them:
Code vulnerabilities
Smart contracts run on code. And all code can have bugs. Even a small error can open the door to big problems. Hackers can find weaknesses and exploit them. And once a contract is live, it’s really hard to fix.
One famous case of this, the Gala Games Hack, happened last year. A dormant wallet with minting privileges got compromised. The attacker used it to print five billion GALA tokens (which is worth around $200million) and started swapping them for ETH.
The account hadn’t been touched in six months. But it still had the keys to the kingdom. Gala froze the attacker’s wallet using a blocklist tool they’d added a year earlier. Then, strangely, the attacker moved the tokens back. Gala shuffled them again, maybe to lock them down. Some say it was an outsider. Others whisper that it was an inside job, especially since several execs left just days before. Whatever the truth, the takeaway is the same: One exposed private key can wreck everything.
Scalability challenges
As more users and transactions happen on a blockchain, networks can become congested. This can slow down transaction speeds and cause delays in contract execution. Smart contracts also often rely on external data sources called oracles. If these sources are slow or unreliable, the contract’s performance can be affected.
Privacy concerns
Blockchains are public by design. Anyone can see the data. That’s great for transparency, but not so great for privacy. If a smart contract records personal or sensitive information, that data is out there forever. You can’t delete it. You can’t hide it. That’s a big problem when it comes to privacy laws like the EU’s GDPR. Under GDPR, people have the right to be forgotten. They can ask companies to delete their personal data.
But smart contracts can’t forget. They’re built to be permanent. Once data is on-chain, it stays there.
This puts companies in a bind. Do they follow the law, or the code? Right now, it’s not always clear what the answer is. And that uncertainty comes with serious legal risk.
Regulatory uncertainty
This is one of the biggest risks. The technology is moving fast but the law isn’t. That gap creates a grey area. And in that grey area, things can go very wrong. Look at what happened with Ooki DAO. It was a decentralised trading platform running on smart contracts. No CEO. No office. Just code and a community. But the CFTC (the US commodities regulator) said it was breaking the law. They claimed Ooki let people trade illegally without a licence. So they sued.
The problem here was there was no clear person in charge. So the CFTC went after everyone who voted on platform decisions. Literally anyone who held a governance token and used it. The case ended in default, but it sent a message. Regulators will act, even if the target doesn’t look like a traditional company.
A similar thing happened with EtherDelta. It used smart contracts to let people trade tokens. The SEC stepped in and said: “Those tokens are securities. This is an unregistered exchange.” This led to another enforcement case.
The industry was shocked. A lot of people thought smart contracts were in a legal grey zone. Turns out, regulators think differently. They’re happy to apply old laws to new tech, even retroactively. The real risk here isn’t just getting fined. It’s not knowing where the line is. Developers don’t know. Users don’t know. Investors don’t know. And when the rules aren’t clear, people hesitate. Innovation slows. Fear takes over.
Integrating regulation into smart contract design
So, what can we do about all this? How do we move forward when the risks are real, and the legal system is still playing catch-up? One answer is to build regulation into the code itself. Not as an afterthought, but right from the start.
- Compliance: Smart contracts should be designed to follow the rules. Things like anti-money laundering (AML), know-your-customer (KYC) checks, and reporting requirements. That’s not easy. Laws change all the time. But it’s possible. And if we do it well, we can reduce risk before regulators even step in.
- Standardisation: Right now, everyone’s writing their own smart contracts, in different ways, for different purposes. That makes it hard to audit and trust. But if we can agree on some shared templates or frameworks, we make it easier for regulators to understand how the contracts work. We make it easier to spot problems before they cause damage. If the DAO contract had gone through a trusted review process, for instance, maybe it wouldn’t have been exploited.
- Interoperability: The world isn’t built on one blockchain. It’s not built on one set of laws either. A smart contract written in one country might be completely illegal in another. But if we start designing contracts that can work across systems, both technical and legal, we’ll be in a much better place.
The path forward
Smart contracts are powerful. They can change how we do business, how we handle money, how we build trust online. But all of that power comes with some real responsibility.
We’ve shown you what happens when things go wrong. We shared those examples. The DAO lost millions. EtherDelta faced regulatory heat. Ooki DAO left everyone wondering who’s actually responsible when no one’s in charge.
If we want to avoid repeating those mistakes, we have to stop treating regulation as the enemy. It’s not a blocker. It’s what gives people the confidence to use this tech in the real world, at scale, in finance, in government, in everyday life.
That means working with regulators. It means writing contracts that know the rules. Accepting that if we want to play a bigger role in the global economy, we need to follow the same standards everyone else does.
