Smart contract automation is the success-mantra for the new age businesses that are aiming to edge past their competitors and reach the top. A smart contract is actually a computer generated protocol, which is set up to validate and put into effect the negotiation or execution of a particular contract in a more seamless way. With the help of smart contract, credible transactions can be carried out without the intervention of any 3rd party. Understandably, thee term, ‘smart contract automation’ discusses the procedure of automating business by executing smart contract in an effective way.
How smart contract automates business?
The concept of altcoin transaction has taken the market to storm. There’s no doubt about it. More so, thanks to the rising popularity of distributed peer-to-peer market, the concept of BTC blockchain business is making headlines with a new vigor. This has set alarm bells ringing for the conventional banking procedure, with the banks already finding it pretty hard to find their place in this new environment and in the era of digitalized transaction. To make matters worse for the banks, a whole new generation of crypto-lawyers has shot into prominence, equipped with codes to legally bring these crypto coin business transactions and the houses carrying them out, under one umbrella. These lawyers have at present become the key influencers of the new smart contracts, thereby further streamlining and automating businesses.
How it all started?
At this juncture, we can take into consideration the case study of Nick Szabo, the American legal scholar, cryptographer and computer scientist, who first introduced us with the term, ‘smart contract’ way back in 1993. It was he, who starting all these and it is mainly because of him that the concept of smart contracts is making headlines in the present blockchain era.Besides introducing smart contract, he also introduced a drafting language in the year 2002 for analyzing the contracts. The language was designed to lessen the uncertainty and support the terms of the written documents. The language acted as a bridge between the procedural codes involved in the transactions and the legal terminologies used. Thus, it became easier for the lay man to understand the technical nitty-gritty of the smart contract and helped them feel more confident and at ease with the proceedings. Moreover, the language also reduced the scope of human error. Besides, it also facilitated flawless computation and affected the end result, without really influencing human intervention in any way.Transactions are at present automated by smart contracts that use the scripting language, which strongly resembles that introduced by Szabo. However, over the years the language went through a number of transformations and has turned out to be more graphical, with the introduction of certain protocols like Ethereum, which is now readily available as a blockchain-as-a-service of Microsoft Inc. The language that this protocol follows is called EtherScript. It has a modular and color-coded structure that makes it more spontaneous and understandable for people, especially the lay man.
The role of smart contract languages in automating transactions
The objective scripting language used in smart contract is redefining and restructuring a set up that already exists. This is mainly to ensure that the entire process becomes more automated and more interactive. As per the experts, use of Blockchain-based transactions is only the launching pad of smart contract automation. There are ample scope of elaborating on it and setting up more complex, multiparty environments.Thanks to the innovation made by Szabo, and the Ethereum project along with some other innovations, computable contract has gone a long way. However, the journey is still not without its blues. The real challenge that is faced by the process of smart contract comes from the age old legal processes that have nothing to do with the modern way of conducting business.
What smart contracts derived from?
For ensuring smart transactions, most of the online shopping sites have been following a sterio type procedure for a considerable period of time. This essentially has been a one-way contract route between the business and the customer. This has been basically a B2C contract route, which terribly lacked flexibility, wherein the service providers used to control the language and the terms and conditions of service statements. Under this arrangement, the customers had two choices — either to agree to these terms and conditions or exit and try for other options.There was no scope of verification. Or even if there was one, the level was low, wherein the shoppers had to put trust on the service provider and the claims made on the site in order to avail the service. The service providers, on the other hand had to trust their customers and allow transactions through credit card and live with the fear of nonpayment. One of the more popular mode of online transaction before the incorporation of smart contract was MERS or Mortgage Electronic Registration Systems. MERS, which is still in use, is actually a centralized, virtual mortgagee, which is designed to simplify the entire process of mortgage and the roles of the parties in the given mortgages.
What’s new in smart contracts?
Smart contracts provide the users the much sought-after scope of verification of authenticity and segregating the document files on the basis of versions. When that happens, the option gives rise to the existence of a fusion mechanism, which is made up of paper and smart codes, or in other words, a hybrid model with paper and smart code. In this method, the smart code is designed to transform the terms of the contact in a language that is understandable and executable by the machine. At the same time, a backup is also maintained in the form of a conventional hard copy.When a system is automated with the help of smart contract technology, it facilitates use of distributed ledgers for recording information. The part of the contract that automates performance should categorically provide all the plausible outcomes on the basis of the prevailing business condition and the facts related to the business. However, when it comes to automating the performance of the said contract, it is imperative that the distributed ledge also has the desired access to various means and parameters that govern or affect the performance. Also, it should have the metrics that essentially evaluate or measure the scale of performance.
Some concerns
One very significant and contemporary instance of smart contracts is the DAO or ‘Decentralized Autonomous Organization’. It is nothing but an investment domain or vehicle, which uses Ether, one of the digital currencies hugely circulated these days. For taking part in a typical DAO smart contract, the stake holders or investors transfer their Ether to a general pool, much like paying an amount for investing in a mutual fund. The DAO smart contract is designed to offer these investors the option of expressing their opinions on the way the Ether Pool should be invested.The contract also has a function, which helps the investors to remove him or herself from the DAO, should they think so. Whenever the users execute this function, it directs the DAO the manner in which Ether needs to be distributed. Now coming to the flaw, a user can continuously keep on requesting for the withdrawal, even after the individual has withdrawn more than the amount of Ether he or she has invested. This is particularly alarming, for when this happens, the very efficacy of a smart contract automated system gives in, thereby raising question regarding safety and security of the system.