The two words “smart” and “contracts” have been thrown around in a sort of matrimonial union termed “smart contracts” since the birth of Ethereum and other emerging blockchain networks.
As is the case with most new technologies, a lot of hype tends to chaperone developments. However, to the less technically attuned mind some questions remain. What are smart contracts, how can they be used, and can they really live up to all the hype?
So, What Exactly Are Smart Contracts?
It’s probably safe to assume that, for most people (especially those who are new to the world of blockchain technology) the most dumb-founding purpose of the now popular term is the word “contract”. In common use cases, the word refers to agreed-upon terms of a relationship between two parties. Such contracts may be overseen by relevant legal structures, should one party happen to default, break covenants, or fail to meet prescribed obligations.
In the use cases covered in this article, many aspects of smart contracts are not too different from their original version. The words “smart” and “contract” come together to define (in most cases) a self-executed process that is stored on blockchain, or otherwise has or will be computed across a blockchain network. More simply, the conditions programmed into the smart contracts are overseen by a network, in this case blockchain, which triggers certain actions once the conditions programmed into the contract are met. These conditions may include fulfilment of contract clauses and provisions, the release of escrow payments, and many other functions.
For the purpose of cutting a clearer and more precise incision into the idea of smart contracts, the best specimen for our dissection would be the well-known Ethereum network. This is a good example because the platform was purposefully designed by its founders to facilitate the creation of such applications (smart contracts).
Dubbed “autonomous agents” by Ethereum, these contracts or “agents” can be designed to work in a number of ways. On the platform, a smart contract that monitors available retail stock can be programmed for retail stores and their suppliers. Once stock levels are running low, the “contract” can autonomously place an order with the supplier. A similar application could be employed by hospitals.
This would save both parties a lot of time, and most business professionals are accustomed to the phrase “time is money”. Such an application could also go as far as potentially saving lives in the case of hospitals (especially in the developing world).
Smart contracts are in truth not an entirely new idea, as the hype around them would have most people believe. In truth, the idea of smart contracts came about in the early 1990’s, conceptualized by a cryptographer named Nick Szabo.
How Can Smart Contracts Be Applied?
Apart from the aforementioned example, there are a number smart contracts being piloted for everyday use in the real world. For example, AXA, one of the largest global insurance brokers, started a smart contract based payout program for flight delay insurance called Fizzy in 2017.
Built on the Ethereum blockchain, Fizzy’s smart contract is designed to store and execute claims payouts autonomously once certain real-world conditions are met. This is made possible through Fizzy’s smart contracts being connected to air traffic databases worldwide. Once the immutable ledger registers a delay of a predetermined time or more, the “autonomous agents” will then initiate the process of a claims payout.
This process, as previously touched upon in the article, makes the claims process less tedious, time consuming and less expensive for both the parties involved. This thoughtful (emphasis on thoughtful) application of a smart contract could have a far reaching and somewhat revolutionary effect on the way we conduct our everyday lives.
Smart Contracts Living Up To The hype?
All the hype around blockchain’s baby is a sort of throwback to the hype around cloud computing and artificial intelligence not so long ago. Whether or not the idea of a world full of smart contract-based, decentralised creature comforts is actually achievable depends on us. These so-called autonomous agents are crafted by humans after all and that’s where the variable of human error comes into play.
This element of human error has in some instances called into question the use of the word “smart“ in “smart contract”. As mentioned before, smart contracts are not all that new; what we see today is merely the fine-tuning of an existing idea. Furthermore, this gradual improvement carries a penalty.
For example, as mobile phone technology improved, the devices became more complex. Since this too is a form of technology, the same applies here. A shining example is 2017’s Parity hack, which exploited a bug in the wallet’s code. This illustrates that increasingly complicated systems can end up proving to be full of complications.
Overhyped or Underappreciated?
To answer the question of whether or not smart contracts have lived up to the hype, it would be wise to say, ‘not yet’. Not yet, because these improved versions of an old idea are still in their infancy. Moreover, it would be unwise to rush to demonize them for their flaws, especially when considering the large interest smart contracts are drawing from the likes of IBM and other institutions experimenting with these nascent concepts.
Smart contracts could well represent the future of goods and services delivery, as well as enterprise-to-enterprise interaction in the complex and messy world we live in. As far as terminology is concerned, maybe Ethereum’s developers had the right idea when dubbing them “autonomous agents” as opposed to smart contracts. The contracts don’t really think of anything for themselves now, do they?