This is for those still unfamiliar with the idea of smart contracts. QBIC presents a short article to serve as a light primer and intro to excite your mind on what smart-contracts will someday mean to our world.
An Introduction to Smart Contracts:
When people discuss blockchain, they often see only a method to send money to another person. Although blockchain as currency is presently the best-applied example of blockchain technology, there are other impactful applications that do not yet receive enough attention. This article will discuss an interesting use-case of blockchain technology: smart contracts.
Smart Contracts: Functions, Benefits, and an Example
Smart contracts serve the same purpose as regular contracts except they are digitized over the Internet, they are automatically implemented, and they decrease dependence on third-party organizations (i.e. Banks, Lawyers, Governments, etc). In addition: one can only append to smart contracts, they are completely transparent and easily replicable. Since smart contracts are programmable, one can program these contracts to execute any automated task that fits one's business needs. Therefore, smart contracts are an improvement upon traditional contracts because they both define the rules and limitations of the contract in question while also enforce those restrictions automatically.
A good example of this use-case is the converting of a traditional renting lease into a smart contract. Prior to signing the lease, the tenant will read the document and observe the any restrictions. When converting the lease to a smart contract, one defines the same restrictions except in a digital format appended to the blockchain. After both parties agree on the terms, the smart contract is digitally signed and enacted. Every month when the rent is due, the money will be sent from the tenant to the landlord automatically. In addition, other bills can automatically be sent to the tenant such as Internet or utility bills. If any clauses are broken, the smart contract will automatically administer penalties to the tenant. If something needs to be repaired, the tenant can notify the smart contract, and the smart contract will automatically contact a trusted maintenance employee to fix the issue.
The list of such applications could be expanded; the point is to illustrate how hundreds of mundane processes can be automated using blockchain. Imagine managing a large property firm that manages over 300 properties. A lot of issues that drive up labour costs within the company could be significantly reduced by making the company more efficient using smart contract technology.
Supporting Smart Contracts:
As mentioned in the prior section, smart contracts can be coded in a programming environment. However, for the time being, only a few platforms support the function of smart contracts. These platforms include Ethereum, Neo, Cardano, and Qtum. Since Neo and Ethereum are further along in their product life cycle, the article will only discuss how smart contracts operate within these platforms.
We will now introduce the concept of ‘Gas’ to the example listed above. The specified supporters of blockchain do not accept fiat currency but rather their respected currency. Therefore, Neo accepts only ‘Neo token’ and ‘Gas’ while Ethereum accepts only ‘Ether’ and ‘Gas’. Although the term ‘Gas’ is used on both of their platforms, you cannot utilise Neo’s Gas on the Ethereum platform and vice versa.
To purchase ‘Gas’ requires the user to enlist on a third party exchange that accepts fiat currency. This introduces the first issue: access. Since the technology is still developing, one cannot buy ‘Gas’ directly from a reputable banking institution. Therefore, one must place trust in exchanges that are susceptible to hacking. As the technology progresses, we will see these currencies become more readily available. Once one possesses the ‘Gas’ currency, they can operate within the cryptocurrency platform and interact with different smart contracts.
After every execution of the smart contract, the person implementing the smart contract must pay a transaction fee. The transaction fee is based on the computational resources required to run the smart contract. For instance, large contracts that require more memory will be more expensive to run than smaller contracts requiring less memory. Another important concept within the cryptocurrency platform is the idea of ‘Gas Limits.’ A gas limit is an arbitrary cap the programmer places on the smart contract that closes the contract when it incurs to many transaction fees. Gas limits are put in place to safeguard from coding mistakes or overuse of the contract. For example, if the programmer accidentally wrote a line of code that never stopped running, the contract would forcibly stop because of the gas limit put in place.
Use-Cases with Smart Contracts:
The following chart illustrates potential use-cases of smart contracts:
Potential Problems with Smart Contracts:
Scaling - Scaling as always been an issue with blockchain technology. This problem is exemplified since smart contracts require more computational power and need to be accessed in real time. Ethereum’s network is currently congested even though adoption is small.
Knowledge Barrier - The ability to create a contract requires knowledge in the subjects of law and computer science. Fluency in either field cannot be learned overnight which may slow adoption and development of the new technology.
Stable Prices - The price of gas has been known to fluctuate severely. In severe cases, the price of gas has changed more than 10% within a few hours. These prices are far too volatile to encourage adoption.
Verifying Quality Assets - The idea of using a smart contract to represent a physical asset is only functional if there is a system in place to confirm the integrity of the assets. Therefore, auditing teams to perform these inspections must be created and accredited by the government to ensure the integrity of assets specified in the smart contract.
Transferring Errors - If a mistake is made in the composition of a smart contract, there is no way to fix these errors since the blockchain is immutable and irreversible. This may allow malicious users to exploit poorly made smart contracts.
Conclusion
The smart contract use-case of blockchain technology is slowly gaining popularity because it possesses real-world applications that revolutionize day-to-day interactions within many industries. Smart contracts improve businesses by efficiently automating processes that take weeks to perform and increase the trust between unfamiliar parties. However, there are downsides to the technology that must be considered. Once these issues are addressed, we will see groundbreaking new applications of this technology .
Often at QBIC new members are asked to write articles as an opener. This article was written in early 2018 By Michael Krakovsky someone we are more than happy to have onboard.