Typically, by the time you hear about smart contracts, you’re already neck-deep into the cryptocurrency and blockchain scene. This is unfortunate, as the technology is fascinating and has the potential to change the world by itself, but possibly its biggest potential advocates haven’t even heard about the concept due to its association with cryptocurrency.
Just the connection alone can lead people to dismiss it for years on end.
But today, we will be addressing the elephant on the blockchain and explaining to you in detail what smart contracts are and why they have so much potential to improve the world.
It gets a bit too abstract and complicated to talk about blockchain and cryptocurrencies. So before we do that, I’d like you to imagine a vending machine as a metaphor for smart contracts.
Vending Machines are run and managed by somebody, but you rarely actually get to see them. After all, the vending machine can take control of certain assets (snacks) and distribute them according to a certain set of pre-established criteria (putting in money and inputting the right code). In other words, you are able to have complex financial transactions, wherein you can use a card, or input physical currency and get change, etc without having to interact with another human being.
That is the essence of smart contracts, except in the digital instead of the analogue world.
They’re a bit of code progr.ammed onto a blockchain, with predefined execution terms for a particular transaction. Upon receiving a given trigger or input, the smart contract will execute and perform its assigned tasks
It bears saying that they cannot be altered. If a smart contract is to be updated, it is replaced, but the old one will remain on the blockchain. Hence, there is no way to covertly manipulate their content without drawing the attention of the network.
Given that they can take control, manage and distribute assets upon meeting a certain condition, smart contracts act as an agreement between parties, but one which needs no judge or intermediaries, as the output is produced from the input deterministically.
In other words, a smart contract removes the need to trust so many people in the process of buying something. The transactions only happen when the conditions in the agreement are met. There is no third party, so there are no issues with trust.
There are numerous benefits that usually get repeated like a mantra when talking about smart contracts: “it’s secure, transparent, accurate, autonomous and middle-man free.”
But those are factoids you could easily learn with a cursory glance on Wikipedia. An often overlooked aspect of smart contracts is what happens when you connect it to other such programs, which themselves are connected to other smart contracts.
This chain of smart contracts can give rise to new organizational structures like Decentralized Autonomous Organizations (DAOs), which are blockchain-based entities that can mimic the capacity of service providers (financial institutions, escrow companies, notary services, social media, etc), as well as every company dependent on “the sharing economy.”
This technology has the capacity to fundamentally change the potential for how the world can develop. After all, we previously thought that large institutions, like banks or social media providers, would be an unwelcome but permanent and necessary fixture of our society. But increasingly, it’s becoming clear that they’re not needed.
Smart Contracts remain a new technology, which carries with it all the associated risks of embryonic development. There presently isn’t regulation over their use, and the fact that they can work completely autonomously means that criminals can transact with them without hindrance.
There are increasingly cybersecurity auditing agencies, which can rate smart contracts based on whether or not they fulfil what they purport to do. This is a good starting point, but the sector needs to be further developed and controlled before it can gain mass adoption.
These are exciting times to be on the cutting edge of technology. Smart contracts hold a lot of promise, but in order to gain legitimacy, they still need to be formalized.
In part, this is what the WACEO was designed to do; we’re a non-profit organization tasked with creating regulatory clarity in the blockchain industry. And presently, we are in the process of speaking with regulators to create the laws that will enable these technologies to achieve their potential.
Smart contracts can fundamentally change how we organize as a society by making the people we entrust with power accountable to the communities they serve. In our view, if there is a cause worth fighting for, increasing justice and fairness throughout the world by an order of magnitude is certainly one of them!
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