Blockchain, a distributed ledger technology typically managed in a decentralized way, was first popularized as the technology behind the cryptocurrency Bitcoin. Since then, it has emerged in various other forms, often with the ability to store and execute computer programs.
This has given rise to applications such as “smart contracts” or contracts with payments activated by a consensus of contingent results and funding through initial offerings. Many industry operators argue that blockchain technology has the potential to disrupt business and financial services in the same way that the Internet greatly reduced offline commerce.
All blockchains, to varying degrees, aim to create a database system in which decentralized agents or institutions can jointly record information and maintain it, without any single party exercising market power or persistent control. A distinctive feature of blockchain architectures is therefore their ability to maintain a relatively more efficient, uniform view of the state of things and the order of events – a consensus.
The left panel shows the relative research interest and traces each search term against its peak (normalized to 100) for a given region and time. The right panel shows the number of blockchain and smart contract projects hosted on Github, one of the leading open-source development platforms for coding programs worldwide, from January 2013 to April 2018.
A smart contract is a computer program with self-verifying, self-executing, and tamper-resistant properties. The concept of smart contracts was proposed by Nick Szabo in 1994. It allows code execution without the need for third parties. A smart contract consists of value, address, functions, and state. It takes the transaction as input, executes the corresponding code, and triggers the output events.
Although a universally accepted definition for smart contracts has yet to be reached, their functionality is clear: to transfer value at low cost or even automate value transfers based on a decentralized consensus record of world states. This leads to a natural functional definition: smart contracts are digital contracts that allow terms that depend on decentralized consensus, are tamper-resistant, and typically self-applicable through automatic execution. It is important to note that smart contracts are neither simple digital contracts (many of which rely on a trusted authority to achieve consensus and execution) nor do they imply artificial intelligence (rather, they are rather robotic, as they are self-applicable once compiled and once their execution is initiated).
Smart contracts can increase and facilitate the exchange of money, property, shares, services, or any valuable asset in an algorithmically automated and conflict-free way.
In addition to applications in payments and commercial finance, blockchain and smart contracts can also be used in trading and negotiation, voting, and even syndicated lending. To this end, in 2015, Nasdaq Inc. launched the Linq platform for managing and trading pre-IPO stocks, and in early 2017, they successfully completed a test using blockchain technology to execute delegate voting on the Estonian Tallinn stock exchange (Shin 2017). Smart contracts can apply a series of standard transactional rules for derivatives (a security with a price dependent on an underlying asset) to simplify over-the-counter (OTC) financial agreements. Symbiont, among others, offers a product with a simple interface for specifying terms and conditions when issuing smart securities, as well as integration with market data feeds.
In the case of blockchain-based smart contracts, contracts are nothing more than scripts residing on the blockchain, which has the ability to execute them. A transaction to a smart contract can be initiated using the unique addresses assigned by blockchain technology.
Suppose you want to sell a house or rent out your apartment to someone, then you can simply implement a smart contract on an existing blockchain network. Information about the property can be stored on the blockchain, and anyone who belongs to that network can access that information but cannot change it. This makes it possible to find a buyer for your property without the need for a third party. For a wide range of potential applications, blockchain-based smart contracts could offer a range of advantages:
- Speed and real-time updates;
- Accuracy;
- Lower execution risk;
- Fewer intermediaries;
- Lower cost;
- New business or operational models.
From the perspective of smart contract research, even in Italy, we are still in the early stages. Some problems still need to be addressed, such as scalability, flexibility, or privacy, since the code is publicly available on the network. The integration of blockchain and smart contracts can be more complete and gradually include more types of contracts. Blockchain technology provides a secure, tamper-proof platform with distributed architecture for peer-to-peer transactions in a secure environment. Smart contracts provide an automatic and deterministic program unit for processing various modules in a certain way and triggering corresponding events. Two technological innovations that, with the necessary time required for their incorporation into our legal system and economy, and with their implementation in the everyday lives of an increasing number of individuals, will certainly bear fruit.
1 Cong, L. W., & He, Z. (2019). Blockchain Disruption and Smart Contracts. The Review of Financial Studies, 32(5), 1754–1797. doi:10.1093/rfs/hhz007
2 Mohanta, B. K., Panda, S. S., & Jena, D. (2018). An Overview of Smart Contract and Use Cases in Blockchain Technology. 2018 9th International Conference on Computing, Communication and Networking Technologies (ICCCNT). doi:10.1109/icccnt.2018.849404
3 Although a weaker definition of smart contracting requires execution to be conducted by centralized parties, having a consensus ledger still significantly reduces friction in contracting and execution, as seen in recent applications in land registries in Georgia (Weiss and Corsi 2017).
4 Symbiont is a member of the Hyperledger project, an intersectoral, open-source, collaborative project led by the Linux Foundation, a non-profit organization, to advance blockchain technology by developing common standards.
Market and Data
_old_Become an author
Wallet
