Криптопедия
Smart Contract
A Smart Contract is a computer program that digitally formulates, disseminates, verifies and enforces instructions. It allows for traceable, irreversible and trustworthy trading to be uted without a third party. In short, the parties involved in a trade are able to ute the instructions automatically, without any intervention. Compared to traditional contracts, smart contracts are blockchain-based, transparent and follow the "Code is law" principle. In contrast, the intermediaries in traditional contracts, such as lawyers, do not monitor the entire transaction in real time. They only do the necessary monitoring and verification after the trade, so there is the risk of information asymmetry. With the advent of blockchain technology, smart contracts have gained a trusted environment, and the two are beginning to be used together. Since it does not require intervention from intermediaries and has features such as mandatory ution of transactions, immutability, and transparency, blockchain technology can reduce trading costs and enhance trading security.
In 1994, Nick Szabo, an American computer scientist and cryptographer, first introduced the concept of "smart contracts". At that time, a "smart contract" referred to a set of commitments in digital form, including an agreement between the parties to fulfill those commitments. However, since smart contracts were invented prior to blockchain technology, there has not been much progress. In 2008, the world's first cryptographic digital currency, Bitcoin, was born. While Bitcoin has supported smart contracts for many years, it was the use of Ethereum that really made them a hit. In 2017, Belarus enacted “The Decree On the Development of the Digital Economy”, making it the first country in the world to legalize smart contracts.
Smart contracts applied on blockchain networks are like a computer protocol, which follows the "If...then..." instruction. It performs a specific task when certain conditions are met. Specifically, the implementation of a smart contract is divided into three parts: the construction of the contract, the storage of the contract, and the ution of the contract. Smart contracts are built by multiple users on the blockchain to conduct trades and manage user transactions. At the same time, rights and duties of both parties in a trade are clarified. The coderes will transcribe into code the instructions that automatically trigger the implementation of the specific tasks. Through the P2P network, each node in the blockchain network will receive a copy of the contract. There will also be automata checking to verify whether the trading conditions are met. If they are, the procedures will be automatically uted. Users will also be notified after consensus is reached. (Note: Automata is a widely used pattern for software design.) The distribution of pensions can help us understand the operation of smart contracts: no third party can tamper with or access the pensions in the social security fund. Only when the requirements (specific date, amount limit, etc.) are met will the automatically make payments to the individual account. There are many other examples of smart contract applications, such as multisignature accounts, payment channels, escrows, time locks, auto cross-chain trading, blockchain oracles, etc.
As mentioned in the article Blockchain: From Digital Currency to Credit Society, "One of the major reasons for not realizing smart contracts is the lack of digital s and technologies that can support programmable contracts. The emergence of blockchain technology has solved this problem. It not only supports programmable contracts, but also has the advantages of decentralization, immutability, transparency and traceability of the process. Such technology is naturally suitable for smart contracts. Therefore, it can also be said that smart contracts are one of the features of blockchain technology".
The concept of smart contracts preceded the emergence of blockchain technology. In that decade or so, smart contracts could not be implemented because there was no trust-worthy environment for implementation. The ution of conventional contracts required participation of the intermediaries. Once the intermediaries were involved, there was no way to make full use of the decentralized implementation of smart contracts. As a result, the smart contract was only a concept, not a real feasible solution. Because blockchain was decentralized, non-traceable, transparent, and not to be tampered with, it could be combined well with smart contracts for it fitted the environment required by the smart contracts.
A smart contract is a self-uting protocol embedded in computer code managed by the blockchain. This code contains a set of rules that multiple parties agree to interact with automatic verification and ution can be achieved if the predefined rules are met.
Ethereum was the first to see the prospect of the combination between blockchain and smart contracts. In 2015, the white paper, Ethereum: The Next Platform for Smart Contract and Decentralized Application was released. After that, Ethereum was gradually built as the best smart contract platform, and smart contracts were developed vigorously. In November 2015, the ERC-20 proposed by Fabian Vogelsteller, a developer of Ethereum, became the technical standard for issuing digital assets and uting transactions on the Ethereum blockchain. There are a set of common rules. Developers can compile new smart contract code and embed it on the blockchain network with new ERC. All digital assets on the Ethereum blockchain must abide by these rules.
ERC stands for Ethereum Request for Comment. As we know, every open source community needs a to perform its tasks, and ERC is a that processes or adopts requests from members in the Ethereum network. Developers can submit proposals for new ERC standards to the Ethereum community by submitting an EIP (Ethereum Improvement Proposal). Submissions include protocol specifications and contract upgrades. Once the improvement suggestion is approved by the Ethereum committee, it will become a new ERC. All digital assets that meet the standards of ERC-20 are commonly referred to as ERC-20 tokens. As of April 16th, 2019, there are over 181,000 ERC-20-compatible tokens on the Ethereum network. There are many other applications for Ethereum-based smart contracts, particularly in banking and finance. Smart contracts can help automate claim processing and enforce real-time regulation on the control rights. In supply chain management centers, smart contracts can also be used to track assets, as well as automate compliance and reporting.
With their unique advantages, smart contracts are used in many industries. They are open, transparent, tamper-proof, perpetual, trustless, and free from third-party arbitration. They improve ution efficiency and reduce business operating costs. For example:
1. International Trade: Current international trade is still dependent on paper contracts and the whole trade process is extremely cumbersome. Although the process is not ideal, international trade contracts are highly standardized. The entire trade and settlement process are highly unified. All these factors are conducive to the application of smart contracts in international trade. It’s mainly manifested in the following aspects:
Firstly, it can reduce the settlement time. Because the transaction does not require third-party intervention, the trading efficiency is much improved. Secondly, it can lower the legal risks. Due to the differences in various legal s, once a party breaches a contract, the other party will face a high cost to defend its own right. Smart contracts, however, can help solve this problem.
2. Financial Services and Banking: Smart contracts can be used to accurately record all financial data, to manage mortgages, transfer capital, and complete settlements.
3. The Supply Chain: The basic process involved in the supply chain is "procurement - storage - packaging - transportation". Each procedure can be compiled as smart contract code into the . This allows real-time tracking of products at each stage from the factory to store shelf. You can also certify the origin of delivered products.
4. Intellectual Property Protection: Smart contracts can be used to prove the intellectual property rights of works of art, protecting them from theft and illegal use. In addition, it can also ensure that whenever someone uses their work, the artists will receive their royalties.
5. Insurance: Insurance agencies can edit various policies into smart contracts, which can contain multiple parameters based on the type of policy. When certain parameters are met, the insurance claim will be processed automatically.
6.Digital Identity: People can use digital identity to manage personal information. No one can view or copy the identity data without authentication from the identity owner. Identity theft can be prevented in this way.
Limitations of Smart Contracts (The DAO Hack)
Smart contracts are code written by humans and are vulnerable to loopholes or attacks. In 2016, the digital decentralized autonomous organization(DAO) developed a set of smart contracts on the Ethereum network and raised a record-high $ 150 million through crowdfunding. In June that same year, hackers found two loopholes in the smart contract, through which they created subcontracts and extracted 2.6 million Ether coins. As a result, $50 million in funds were stolen by the hackers. That cyber-attack sparked a debate in the cryptocurrency space about a possible "hard fork" on Ethereum. The furore has split online opinions in two. Ethereum continued to grow on the newly forked blockchain, while supporters of the old chain insisted that what happened on the blockchain could never be tampered with, which led to the creation of "Ethereum Classic". After the hard fork associated with the DAO, Ethereum then forked twice in the fourth quarter of 2016 in response to other attacks. By the end of November 2016, Ether enhanced its DDoS protection to stop more spam attacks.
Smart contracts are controversial in a legal sense. The legal definition of smart contracts in most countries today is still a grey area and does not fit into the current legal regulatory framework. Since smart contracts are non-tamperable, self-uting, and irrevocable, the law may not be able to intervene in the formation of the contract. As a result, there may be contracts enacted by fraud, coercion, or harm to others. Moreover, if a smart contract is not written accurately, it may lead to potential vulnerabilities.
