one of the key technology innovations of
second-generation blockchains
has been the development of what are
called smart contracts smart contracts
are computer code that is stored inside
of a blockchain which encode contractual
agreements smart contracts are self
executing with the terms of the
agreement or operation directly written
in two lines of code stored and executed
on the blockchain computer a contract in
the traditional sense is a binding
agreement between two or more parties to
do or not do something each party must
trust the other parties to fill their
side of the obligation they are a
written or spoken agreement that is
intended to be enforced by law a
multiplicity of different contractual
agreements form the institutional
foundations to our modern society and
economy which have evolved since ancient
times if we think about something as
seemingly simple as a cafe serving a cup
of coffee we will see that this process
is really enabled by a massive amount of
contractual agreements between different
parties that enable them to cooperate in
delivering that outcome contracts
between employees and employer of the
coffee shop contracts that provide
workers with health coverage contracts
that ensure the coffee-shop contracts
between suppliers along the supply chain
contracts between property owner and
tenant etc our economies are powered by
a massively complex set of contractual
agreements that are currently created
and enforced by centralized
organizations like insurance companies
and banks which themselves are supported
by the ultimate centralized authority in
the system the nation-states
institutions are societies and economies
home is completely dependent upon third
party organizations to maintain and
enforce those contractual agreements
smart contracts feature these
kind of agreements to act or not act but
they removed the need for the trusted
third party between members involved in
the contracts this is because a smart
contract is both defined by the computer
code and executed or enforced by the
code itself automatically without
discretion at such blockchains as smart
contract technology can remove the
reliance on centralized systems and
enable people to create their own
contractual agreements that can be
automatically enforced and executed by
the computer code these smart contracts
are decentralized in that they do not
subsist on a single centralized server
but are distributed and self-executing
across a network of nodes
this means that untrusted parties can
transact with each other in a much more
fluid fashion without depending upon
third parties to initiate and maintain
the rules of the transaction likewise
smart contracts enable autonomy between
members meaning that after it is
launched and running a contract in its
initiating agents need not be in further
contacts one Ellis tration of this
concept is offending machine unlike a
person a vending machine operates
algorithmically you provide the source
input of money and product selection
which the machine takes as input and
simply execute on a rule automatically
to produce the pre-specified output the
same instruction set will be followed
every time in every case when you
deposit money and make a selection the
item is released there is no possibility
of the Machine not wanting to or not
feeling like complying with the contract
or only partially complying as long as
it's functional as another example we
can think about a situation where four
people pool their money to make a joint
investment that will return interest to
them a smart contract could be
programmed on the blockchain to take any
interest that is created divided into
four and send each amount to the cursor
bonding wallets of the different
stakeholders a smart contract is then
really just an Accounts on the
blockchain that is controlled by code
instead of by user because it's on the
blockchain it is immutable that means
the code cannot be changed and thus all
participants in this investment can be
assured that they will get their fair
share automatically the code dictates
how the process will take place and no
individual has the power to change it no
individual no organization no government
can censor alter or manipulate the
contracts in this respect it's often
said that code is law in the sense that
the code will execute no matter what of
course computer code has been for a
while now acting as the law for example
as services have gone online we're
increasingly faced with web forms that
strictly control what inputs are allowed
if you want to buy an item on iTunes USA
then you'll have to have a credit card
with the u.s. address the system will
also enforce this by not letting you
complete the purchase with an incorrect
address as another example a logistics
company could use smart contracts to
execute code that says if I receive cash
on delivery at this location then
trigger a supplier request to stock a
new item since the existing item was
just delivered
a combination of smart contracts with
blockchain encoded property gives us the
idea of smart property smart property is
simply property whose ownership is
controlled via blockchain encoded
contractual agreements for example a
pre-established
smart contract could automatically
transfer the ownership of a vehicle
title from the holding company to the
individual owner when all the loan
installments have been cleared the key
idea of smart property is controlling
ownership and access to an asset by
having it registered as a digital asset
on the ledger and connecting that to a
smart contract in some cases physical
world hard assets could quite literally
be controlled via the blockchain one
example of such an IOT blockchain system
is SLOC it a door lock that is connected
to a smart contract on the blockchain
which controls when and who can open the
lock this enables anyone to rent sell or
share their property without need of a
middleman with such innovations parking
spots can be subletted on demand
Airbnb accommodation could become fully
automated or someone with 20 bikes in
Bangladesh could rent them out with
smart contract locks the bike could shut
itself off if it is not been paid for or
if it's stolen then there could be an
automatic deposit system or likewise if
the person wanted they could simply pay
a certain price to purchase the bike at
any time
like all algorithms smart contracts
require input values and only act if
certain predefined conditions are met
when a particular value is reached the
smart contract changes its state and
execute the programmatically predefined
algorithms automatically triggering an
event on the blockchain thus the
workings of the overall contracts can
only be as good as the inputted data if
both data is imported to the system then
false results will be outputted
blockchains
cannot access data outside of their
network
thus require some form of trusted data
feed as input to the system what may be
called an Oracle an Oracle is a data
feed provided by an external service and
designed for use in smart contracts on
the blockchain Oracle's
provide external data and trigger smart
contract executions
when predefined conditions are met such
conditions could be any data like
weather temperature the quantity of
items in stock the completion of a
successful payments changes in the
prices on the stock market etc an Oracle
in the context of block chains and smart
contracts is then an agent the finds and
verifies real-world occurrences and
provides this information to a
blockchain to be used by smart contracts
Oracle's are third-party services which
are not part of the blockchain consensus
mechanism thus whether it be a news feed
website or a sensor the source of
information needs to be trustworthy as
an example we could think of an online
betting platform based on the blockchain
that uses smart contracts to
automatically execute payouts to people
who have placed bets on sports matches
the smart contract system would then
have to be connected to a trusted Oracle
to provide it with the score of the
matches as of present this Oracle would
likely have to be associated with some
trusted third party centralized
organization like a sports channel or
Bloomberg for stock prices however in
the future through data fication an IOT
pervasive sensing this might also be
automated given the use of advanced
analytics using automated Oracle's that
draw data from a myriad of sources and
complex analytics to find cross
correlations that provide a statistical
assurance that for example a given event
occurred or did not occur the advantages
of smart contracts are numerous firstly
they are automatic which could remove
the time and cost
associated with managing and enforcing
them making them more efficient as they
can be cheaper and faster to run through
this form of automation a much greater
amount of exchange could take place that
otherwise would have never happens in
such a way we can see how distributed
edges and smart contracts are key parts
in enabling a true services economy
where ownership is displaced by temporal
usage through the on-demand provisioning
of services secondly they could reduce
corruption as code is both transparent
in its workings and automatically
executed this leaves the room for
individuals or organizations to alter it
to their advantage thirdly they can
reduce dependency upon centralized
organizations as people may be able to
set up their own contractual agreements
peer-to-peer thus limiting the arbitrary
power of centralized organizations
lastly they can also deliver certainty
as smart contracts guarantee a very
specific set of outcomes that are
predetermined before hands enabling all
parties to know exactly what will happen
but herein also lies some of their
limitations by automating the execution
of a contract they are dependent upon
formal rules with well specified inputs
and leave little room for a multiplicity
of eventualities where the rules may
need to be slightly altered because of
unforeseen circumstances for example a
car that's being used on demands that
operates through a smart contract may
simply shut the user out if they have
not paid their bill and would take
little accounts of the facts but it may
be a life or death emergency usage in
the real world many unpredictable and
unforeseen events to occur and rules
sometimes need to be flexible and
adaptable to accommodates and this is
one advantage of having human oversight
as people are much more capable at
judging such circumstances and
responding appropriately to complex
unforeseen eventualities so the degree
to which we can automate contracts is
relative to the
kind of environment that's being
operated in and in more complex
situations that will often need to be
some form of governing body to intervene
when needed and this creates new
complications surrounding governance
that are still yet to be figured out