THE BLOCKCHAIN SMART CONTRACTS REVOLUTION

It is quite clear for everyone by now that smart blockchain-based contracts have the potential to revolutionize the way we conclude agreements, execute transactions and grant authorizations. They transform the way many industries work. What can the technology do for regular citizens and small businesses?

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Smart contracts in peer-to-peer networks

A key feature of the blockchain is its ability to cut out the middleman by bringing transaction parties into direct contact with one another. In 1994, the lawyer and cryptologist Nick Szabo realized that blockchain could be used to conclude contracts without intervention or authorization by any party. Such contracts could be concluded automatically once the relevant contractual terms have been met. This is how the idea of ​​smart contracts came into being.

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The advantages of smart contracts

  1. Control, or rather the lack thereof. In a distributed system that confirms (or withholds approval for) contract performance, multiple parties constantly check, re-check and update block entries, whereas other contracting parties reject any performance that fails to comply with prescribed rules.
  2. Security. The contract logic is followed by running the program simultaneously on all blockchain nodes. All of the parties involved can then compare the results. Such parties modify their own version of the block only after they have agreed to contractual terms. The block is then replicated throughout the network. In theory, no one can fool the blockchain.
  3. Transparency and flexibility. Any blockchain user can evaluate contract logic and the underlying mechanism. Each of them can verify and run the same code. Needless to say, users are not granted access to individual contracts, which can only be seen by the contracting parties, as are all contract details. If other users accept the contractual terms and contract logic, then — simply put — any of them can duplicate, modify and execute the contract again for their purposes. As mentioned before on several occasions, the way blockchain handles privacy is controversial.

Waiting for a killer smart-contract app

I am watching the new technology, waiting to see it win over successive communities and professions. Last March, Muscovites were given access to the blockchain-based platform Active Citizen designed to connect members of micro-communities. Launched by the city authorities, the platform is intended to support the casting of votes and the adoption of resolutions in neighborhoods. The blockchain debate has also spread to Europe. In February 2018, the European Commission resolved to set up a blockchain observatory.

Check out these examples of how smart blockchain-based contracts could change our lives in the near future:

Taxi drivers in blockchain and simple logistics

In a single pithy sentence, Vitalik Buterin, the creator of the Ethereum ecosystem, has summarized the benefits of blockchain for urban transport. “Instead of putting the taxi driver out of a job, blockchain puts Uber out of a job and lets the taxi drivers work with the customer directly.” Arcade City is an example of a startup based on operating principles that are similar to those of Uber and Lyft. The difference in Arcade City is that the drivers who use the blockchain function, which keeps track of all interactions, can already fix the rates they charge and build their own customer base. They can also employ smart contracts to close deals for specific routes.

Paper documents to become museum items

Tens of millions of passports, which of course are traditionally on paper, are counterfeited world-wide every year. Some countries are already engaged in advanced projects to digitize such data. Dubai is working to develop digital passports. This field is another possible application of blockchain. Sooner or later, public administration should accept the idea of ​​keeping their records digital and unforgettable. All information used to identify citizens and any other citizen-related data could be kept in a single global decentralized blockchain-based peer-to-peer database. Forging a document would require breaking into and modifying a blockchain, which is practically impossible. What is more, any change to or entry in such a document, such as a visa or transit annotation, would be saved permanently. One can only imagine how this would increase security and data transparency.

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Banks whetting their appetites

Will blockchain make the bank account a mere memory? This is not entirely out of the question. The cryptocurrency community view traditional money as archaic. They argue that all financial operations can be performed by means of an unfalsifiable string of characters shared directly between the members of a given network. The banking community has already recognized the blockchain as essential for the upcoming changes. Last year, IBM carried out a survey of 200 banks. As many as 65 percent of them revealed plans to launch blockchain projects within the next three years. I think it is almost 100% certain that blockchain will become part and parcel of this sector. This may well mean that ordinary cash customers will no longer require bank intermediation.

Monitoring politicians

Blockchain can become a critical tool for the public to control politicians. Future blockchain-based tools may prove irreplaceable in overseeing the electoral process, with blockchain’s ability to act in real time coming in handy. Vote tracking and counting will no longer require large electoral commissions that perform multiple activities. Voters could be given a useful auditing tool to ensure that no votes are deleted or added. Just how crucial that is in politics goes without saying.

Making the cloud even safer

The blockchain technology is likely to be valued by medium-sized businesses. Applications that group datasets and support joint transaction authorizations are set to gain popularity. Even as a small business owner, you are likely to keep your business data in a cloud at more than a single address. Owing to its distributed architecture, blockchain is a perfect fit for such decentralized environments. It divides files into small pieces and saves them to multiple locations. Every new piece that it generates becomes part of the blockchain. Information about file uploading or downloading is shared with all network users, who can authorize the entire process. Distribution and joint authorization give the user a sense of added security. The value that such solutions bring to smaller or larger businesses and their potential to further their growth is beyond question.

Enthusiasts and skeptics

While the tech industry enthusiastically welcomes the capabilities of blockchain, marketers and trend researchers have responded with considerably more poise. Smart contracts may be difficult to embrace psychologically. As you may well remember, once an algorithm recognizes that proper conditions have been met, a contract will self-execute. Blockchain fans see this as a sign of technological intelligence. They stress that automated contracts do away with red tape, superfluous middlemen, “third parties”, ambiguous terms and conditions, and, by doing so, even reduce court workloads. Skeptics, in their turn, point to human reluctance to entrust such matters to algorithms. Not everyone can live with having no humans involved in the drawing up and conclusion of contracts. The approach of skeptics resembles that of drivers who swear they will never get into an autonomous vehicle or allow an IT code make decisions concerning road safety. Personally, I refuse to believe that disagreements over some aspects of blockchain operation could keep it from transforming the world.

Written by

Technology is my passion. Head of Microsoft Services CEE. Private opinions only

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