Speaking at the 2017 Consensus blockchain technology summit, Dan Larimer (creator of Graphene, Bitshares, and EOS) noted that, in order to see blockchains truly go mainstream, we need to go beyond its applications in terms of cash and a store of value and address the sheer volume of traffic and operations occurring on real-world business applications.
Smart contract functionality is a shining example of a blockchain application that has the potential to do just that: improve on real-world business applications, a hundred times over.
Smart contracts are applications that automatically execute tasks in accordance with their underlying algorithm (a process or set of rules to be followed in calculations or problem-solving operations).
In simple terms, a smart contract is a software programme that stores the conditions of a contract. The conditions are set within the smart contract and will automatically execute based on when or if the criteria are met, without the possibility of either of the parties altering the contractual terms once the contract has been signed. This removes the need for a trusted third party to be involved in a transaction that relies on certain parameters.
Some examples include:
When paired with blockchain technology, smart contract applications make use of a decentralised network of computers to store a copy of the contract, verify that conditions have been met and that tasks have been fulfilled correctly.
Contract transactions are stored in chronological order on the blockchain for future access with a completely transparent, and public, audit trail of events.
If any network node should try to change the details of a contract or a transaction on the blockchain, all other nodes will be able to detect and prevent it, making it resilient to interference.
The Ethereum Blockchain was created to operate as a global computer, with smart contract functionality built into the system. Developers who want to create their own smart rules on top of Ethereum can do so, and would then create their own Ethereum-based token to reward the network nodes for their verification work, to manage access to the service, and to represent a holding in the application. There are already hundreds of Ethereum Standard (ERC20) tokens that represent unique smart contract services built on the Ethereum blockchain.
By interacting with the ENS app through smart contracts, users can buy various Ethereum-based domain names. In this case, a decentralised computer runs the domain name auction. Users can decide how much they would be willing to bid for a domain name and correlating amounts of ether to the computer. Should one of your bids win, the computer will claim that bid amount and return the others to you. With smart contracts instead of a central authority managing the process, there is no chance of the bidding process being rigged.
0x is another Ethereum-based platform with a focus on smart contracts that provides users with a means to securely exchange Ethereum-based tokens, without the need for an exchange or any other third party. Users set IF/WHEN criteria for the trade of their tokens on the platform and broadcast these conditions to potential trade partners. The tokens to be exchanged remains in the user’s wallet until their criteria (e.g. a specific price point) is met or the contract is cancelled (e.g. an expiration date or time), at which point the funds exchange wallets according to the escrow contract.
In December, Juan Garavaglia who is part of the Bitcoin Cash developer community released a statement that included news that smart contracts are on the horizon for Bitcoin Cash:
“Always keeping our main mission clearly, we also wish to start including features allowing the network to let decentralised trustless transactions and smart contracts. This vision is aligned with the one of the “Internet of Value”. By including this additional protocol features we expect to propose improvements for fungibility and privacy in a reasonable time, considering it is also one of the primary requirements for the massive adoption of Bitcoin Cash.”
Considering the ability of smart contracts to trustlessly and transparently automate literally any conditional service in the real-world, it has tremendous potential for driving blockchain to mainstream business functionality. Given Bitcoin Cash’s planned upgrade in May that will lay the foundation for this functionality, 2018 could just turn out to be the year that smart contracts steal the limelight within the blockchain sphere.