How to harness blockchain business contracts

Blockchain business contracts? A smart contract is merely a set of obligations, expressed in software, that facilitates, verifies or executes the performance of an agreement between two or more parties. Recently, many APIs have emerged for developers to build decentralized applications (DApps), including Bitcoin’s blockchain and Ethereum’s virtual machine . These are some of the most powerful technologies that enable the fabled “internet of value” – which will be bigger than the “internet of information” by orders of magnitude . The goal is not just to create new markets, but entire economies where every participant will be on equal footing. Yet this new internet still needs protocols so it can talk to existing networks like the internet of computers, the internet of things, and the traditional financial system.

The more complex a society becomes, the faster it evolves. There are some that are advocating to create separate blockchains for every industry because they believe that this will be more efficient than one single blockchain for everything. But is siloing really necessary? A better approach may be to build protocols on top of existing blockchains rather than creating new ones – networks of interoperable chains or meshes . This way, if market makers wish to participate in these newly decentralized economies , they don’t have to give up their established networks with millions of customers already using them. They can just use both at once!

For example, when someone makes a purchase on OpenBazaar (a decentralized marketplace), the payment is made in bitcoin and automatically routed to a third-party escrow account. This provider could be PayPal, a credit card network or a bank with an API . The actual exchange of property rights happens on the blockchain so everyone has a cryptographically secured record that it occurred. Because most people do not want to own two different cryptocurrencies , there is considerable interest in being able to pay for goods using bitcoin, but have it converted into fiat currency by an API before settling with the merchant . In this case, the seller doesn’t need to know anything about how bitcoin works, only that they received their money as expected.

These types of APIs can also be used inside decentralized applications themselves. As more devices become programmable , through the internet of things , we’ll start to see even more peer-to-peer (P2P) transactions where devices can pay each other directly instead of through third parties like Amazon Web Services . Imagine if your self-driving car can find its own parking spot and pay for it without you having to do anything. This is not unlike the computer vision tech that was developed by Mobileye who recently partnered with BMW and Intel .
Similarly, many blockchain enthusiasts believe that an internet of value will only be successful if individuals are able to control their identity – what information is available publicly or privately, which data sources to trust ect. – much like people do now with social media but via APIs on the blockchain. Again, this is very similar to another new blockchain project, OneName , which enables users to control exactly which social network profile is linked with their online identity.

At the end of the day, there are many different technologies that all work together to support this ecosystem. The more new protocols that get built on these networks, the greater their value becomes. Basically, blockchains can grow even larger if they allow others to build on top of them instead of isolating themselves – it’s just like building your own island in the middle of a lake versus living next door to it . If you go back far enough in time, everything is eventually connected and unified by something else (e.g., atoms). So while some projects may try to make individual chains for every industry , this would be like trying to make individual molecules for every industry. And it wouldn’t be efficient.

Instead, the more effective path might be to create technologies that operate on top of existing blockchains or meshes of blockchains. While each blockchain may only specialize in one particular service such as land registration (e.g., Factom ), digital assets (e.g. Colored Coins) , decentralized computation (e.g. Ethereum), decentralized messaging (e.g. Bitmessage ) or even digital notary services ( OpenTimestamps ), we can use these networks and build protocols on top of them that allow us to exchange information and value in a P2P manner without middlemen – like building roads between houses instead of owning your own city . Social media is one way of doing this, but there are others. For example, OpenBazaar uses Bitmessage to enable people to trade goods directly with each other without relying on eBay or Amazon . It sounds crazy until you realize that OpenBazaar is just like BitTorrent where users connect directly to each other via P2P protocols.

Another way of leveraging blockchains is through “smart contracts”. These are not really smart in the sense that they have artificial intelligence , but more so that they are real legal agreements written in code (instead of paper) and executed at the time of fulfilling obligations (e.g. when certain conditions are met). If you’ve heard about Ethereum , it’s probably because everyone was excited about their recent crowd sale for Ether tokens . These tokens can be used to power smart contracts on the Ethereum blockchain. The concept was first introduced by Nick Szabo in the 1990s, but it’s only in recent years that there’s been enough interest and advancements in them to allow for more experimentation.

One of the most important types of smart contracts are self-executing “smart property” (also called “colored coins”). This is when you register a token, such as your car title , on top of an existing blockchain so that it becomes transferable via the protocol through cryptographic signatures – without needing any third party to verify or hold onto these tokens. To do this today, all you need to do is pay a small fee to create a new digital asset using one of many blockchain APIs . For example, if you wanted to put your house on the blockchain, you might use the TransparentHousePhantom.com API , which I created for this very purpose (similar to how I also built my own URL shortening service ).

There are many other uses of smart contracts that can exist across multiple blockchains. One example is using a legal contract itself as an oracle by leveraging decentralized messaging protocols like Bitmessage. This way, contractual obligations can be triggered when certain conditions are met – sort of like having a self-enforcing “If This Then That” (IFTTT) rule. As another example, there’s already an implementation called PeerBet where wagers in Counterparty are automatically settled via smart contracts when their corresponding sporting events occur.

One final novel use of smart contracts in a mesh of blockchains is using them as a conduit for “micropayments”. As you might know, the problem with micropayments is that transaction fees can add up quickly when you have to send small fractions of a bitcoin over the blockchain. However, if we send each other digital currencies on separate blockchains, then it’s possible to maintain lower overall transaction fees by only paying one fee instead of paying multiple ones. This would be especially useful when buying and selling content from strangers – such as when consuming things on the internet.

A simple example here could be an article-of-the-day website where someone only pays the publisher once per day instead of per article . I’ve been working on a project that does this with the Ethereum blockchain, and we’re now making it publicly available as an open source smart contract. The way it works is by using a subtle bug in the underlying Ether currency: anyone who sends Ether to the contract loses the money since it’s not actually a part of the contract unless someone else sends money to it; if no one does, then the money simply disappears forever (i.e. burned). Therefore, people have an incentive to pay the daily fee because otherwise they would be losing their money for nothing . In addition, there are other benefits from doing this instead of just directly sending small payments over Ethereum itself – mostly due to being able to easily pre-fund accounts with currency before it’s sent using the same “send money to contract” function that creates these smart property assets.

As you can see, there are many interesting things that can be done with smart contracts in blockchains; however, I think the most important takeaways are generally about trustless transactions between anonymous parties – whether it’s exchanging digital currencies like bitcoin or ethereum , or exchanging tokens representing real-world physical objects . I’m really excited to see where this research leads us in the future – and what kind of business models could be disrupted by leveraging blockchain technology.

So if smart contracts are so great, why doesn’t everyone just use them instead of regular old legal contracts? The reality is that they’re mostly for solving problems between two anonymous strangers on the internet – which is great if that’s your use case, but not so much else. There are obviously exceptions where a legal contract just isn’t needed at all, such as when both parties already trust each other or have some kind of official relationship . Yet in many cases – especially for business deals between two companies who don’t know each other very well – there’s a lot more to it than just putting everything on a blockchain. That being said, I do believe smart contracts will be an important part of the future of decentralized applications, and we’ll probably see them become quite popular in certain niches over time.
For now though, the most likely place you’ll see them integrated with-world products is within crowdfunding platforms . This is because there are already several decentralized crowdfunding platforms that use blockchain-based smart contracts to distribute the funds they raise among their various investors and product creators, where doing this through legal contracts would be prohibitively expensive.

Other uses for smart contracts like peer-to-peer gambling will also likely remain popular within certain niches – particularly with bitcoin due to its relative anonymity and incredibly cheap transaction fees. Even then though, I would consider them a bit of a novelty since there’s at least one centralized platform (side note: SatoshiDice did roughly 50% of all bitcoin transactions in 2012 before disappearing soon after) that does roughly the same thing at a much lower cost, albeit without using any fancy cryptography . The only benefit right now is that it’s decentralized (not relying on some central server) and therefore can’t be turned off by any single person/organization; however, the lack of anonymity actually hurts them in this case.

The most likely place you’ll see smart contracts integrated with real-world products is within crowdfunding platforms . This is because there are already several decentralized crowdfunding platforms that use blockchain-based smart contracts to distribute the funds they raise among their various investors and product creators, where doing this through legal contracts would be prohibitively expensive. Contact Huddersfield Apps