We were all born into a world where the level of distrust in every area of human life (finance, business, politics relationship etc.) has caused a lot of ills & damage to our society which gave room for us to have a third party system so as to ensure transparency in all human activities. However, this third parties/institutions (which can also be referred to as the traditional smart contract model for the sake of this post) are vulnerable to manipulation and have proven to be untrustworthy.

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Let’s take for example, the banking sector, you and I understand that one of the rules of engagement is to provide transparency in every transaction between two or more people, but we have seen cases whereby those who own the bank, who have a large amount of money in the bank & those who work in the bank (top officials) can easily manipulate any transaction to their favour.

Another example is the judicial system. In a world full of dishonest people and smooth criminals, the court is the only hope of every common man to get justice, but with the high level of corruption and greed in our society Justice sometimes has turned to “how much you can spend to manoeuvre the judge and every institution/individual involve to the favour of your case” just like what happened in the popular tv series: How to get away with murder.

In 1994, a cryptographer and also a legal scholar NICK SZABO came to the realization that the decentralized ledger (Blockchain) could be used for smart contracts which can also be referred to as Blockchain contracts, self-executing contracts, incorruptible contracts, digital contracts.

• This implies that contracts will be converted to computer code, which will be stored and replicated on the Blockchain and this is been supervised by the network of computers that run the blockchain.
•  With smart contracts, people will be able to exchange property, money, services.
• There will be transparency in the exchange of anything that has value and a conflict-free transaction which won’t call for the need of a middleman irrespective of their location.
• If the smart contract is being adopted in our voting process it will take a spiritual power no other but GOD himself to hack and manipulate the system, the distributed ledger protects the voter’s data (number of register voters and their eligibility) and the vote cast. The smart contract takes away middlemen manipulation of the number of voters and all form of electoral malpractice.
• The smart contract ensures there is no mismanagement of funds and resources for government and private institution, because of the transparency & accuracy of the distributed ledger (Blockchain) it cuts out any form of discrepancy in the administration that could lead to excess spending, ghost workers and manipulation of data.

BENEFITS OF SMART CONTRACTS

Smart contracts come with a lot of benefits which includes the following

• Trust:There is no way one out of the two-party can manipulate the system.
• Speed:it brings about a fast transaction.
• Itsaves you money and effort: there is no need to spend money on the services ofthe middleman.
• Highlevel of Accuracy: with smart contracts there won’t be an error because it isan automated contract.
• Autonomy:It gives autonomy for both parties involved.
• Highlevel of backup on the distributed ledger(Blockchain).
• Highlevel of safety: cryptography keeps your data and documents safe from hackingand manipulation.

THE MAN BEHIND SMART CONTRACT

Nick Szabo is a computer scientist, cryptographer and legal scholar, he is known for his research in digital currency and digital contracts.  He graduated from the University of Washington in 1989 with a degree in computer science. He holds an honorary professorship at the Universidad Francisco Marroquin.

The phrase and concept of “smart contracts” were developed by Szabo with the goal of bringing what he calls the “highly evolved” practices of contract law and practice to the design of electronic commerce protocols between strangers on the Internet. Smart contracts are a major feature of cryptocurrency and the programming language E.

Szabo influentially argued that a minimum granularity of micropayments is set by mental transaction costs

In 1998, Szabo designed a mechanism for a decentralized digital currency he called “bit gold”. Bit gold was never implemented, but has been called “a direct precursor to the Bitcoin architecture.”

In Szabo’s bit gold structure, a participant would dedicate computer power to solving cryptographic puzzles. In a bit gold network, solved puzzles would be sent to the Byzantine-fault-tolerant public registry and assigned to the public key of the solver. Each solution would become part of the next challenge, creating a growing chain of a new property. This aspect of the system provided a way for the network to verify and time-stamp new coins because unless a majority of the parties agreed to accept new solutions, they couldn’t start on the next puzzle.

When attempting to design transactions with a digital coin, you run into the “double-spending problem.” Once data have been created, reproducing them is a simple matter of copying and pasting. Most digital currencies solve the problem by relinquishing some control to a central authority, which keeps track of each account’s balance. This was an unacceptable solution for Szabo. According to him; “I was trying to mimic as closely as possible in cyber-space the security and trust characteristics of gold, and chief among those is that it doesn’t depend on a trusted central authority”.

IS HE THE REAL SATOSHI NAKAMOTO?

Many analysts and cryptocurrency enthusiasts have argued that Nick Szabo is the true Satoshi. Here are some of the reasons why.

THE Bit Gold Project

One of the reasons that Szabo could be Satoshi is that the computer scientist created an important predecessor of bitcoin. Called “bit gold,” this early example of a digital currency provided an important impetus for some of the developments that would later characterize bitcoin. Further, Szabo and Satoshi contacted the same group of people for feedback and advice with their respective cryptocurrency projects. According to Gizmodo, Szabo even backdated a blog post asking for advice on how to launch bit gold in order to make it appear that he wrote the query after Satoshi released a paper on bitcoin in 2008.

Writing Mannerisms

Gizmodo’s report indicates that Satoshi and Szabo even have a similar writing style, citing Szabo’s blog post and Satoshi’s early paper on bitcoin. From research conducted at Aston University in Birmingham, England, to determine potential contenders for the real identity of Satoshi, a report concluded that Szabo’s writing contains “striking parallels” to Satoshi’s, including similar writing mannerisms and phrasings. Aston’s Jack Grieve described the similarities as “uncanny.”

Their Similar Arguments for Bitcoin

A report on Medium draws further parallels between Szabo and Satoshi. According to the report, “Szabo and Satoshi each give essentially an identically unique explanation” as to why Bitcoin should have value. While it’s possible that two independent cryptocurrency experts would arrive at a nearly identical argument in favour of the world’s most popular digital currency, again, the parallels between the two arguments have some analysts and others in the cryptocurrency community wondering if it might be more than a coincidence.

However, Nick Szabo has repeatedly denied all claims linking him to Satoshi Nakamoto.

HOW SMART CONTRACTS WORK

The best way to describe smart contracts is to compare the technology to a vending machine. Ordinarily, you would go to a lawyer or a notary, pay them, and wait while you get the document. With smart contracts, you simply drop a bitcoin into the vending machine (i.e. ledger), and your escrow, driver’s license, or whatever drops into your account. More so, smart contracts not only define the rules and penalties around an agreement in the same way that a traditional contract does, but also automatically enforce those obligations.

In a technical example: Assets and contract terms are coded and put into the block of a Blockchain. This contract is distributed and copied multiple times between the nodes of the platform. After the trigger happens, the contract is performed in accordance with the terms of the contracts. The program checks the implementation of the commitments automatically.

HOW TO CREATE SMART CONTRACT

To create a smart contract, the following must be put in place:

• The subject of the contract: The program must have access to goods or services under contract to lock and unlock them automatically.
• Digital signatures: All the participants initiate an agreement by signing the contract with their private keys.
• Contract terms: Terms of a smart contract take the form of an exact sequence of operations. All participants must sign these terms.
• Decentralized platform: The smart contract is deployed to the Blockchain of this platform and distributed among the nodes of the platform.

check out our post on a to z of blockchain technology

AN EXAMPLE OF SMART CONTRACT

Here is the code for a basic smart contract that was written on the Ethereum blockchain. Contracts can be encoded on any blockchain, but Ethereum is mostly used since it gives unlimited processing capability.

For further reading check out the smart contract on Ethereum source: https://www.ethereum.org/token

SMART CONTRACT USE CASES

Smart contracts can be applied to different fields ranging from:

• Elections
• Healthcare
• Logistics
• Management
• Bank system
• Automobile
• Insurance
• Real Estate
• Internet of things IoT, etc.

DISADVANTAGES OF SMART CONTRACTS

Unlike every other invention Smart contracts are not that perfect, here are some of the issues related to smart contracts:

• Human factor: The code is written by people, and they can make mistakes. If the smart contract is in the Blockchain, it couldn’t be changed. A good example of the human error is THE DAO. Developers’ mistakes in the code were costly for the users and the company – some hackers exploited errors and stole about $60 million.

• Uncertain legal status: Currently, smart contracts are not regulated by any government. So there is a potential issue if governmental institutions decide to make a legislative framework for smart contracts.

• Implementation costs: Smart contracts cannot be performed without programming. It is essential to have an experienced coder on the staff to make fail-proof smart contracts and adopt the internal structure of the company for Blockchain technology.

CONCLUSION

When it comes to smart contracts, we’re stepping into a sci-fi screen. The IT resource centre, Search Compliance suggests that smart contracts may impact changes in certain industries, such as law. In that case, lawyers will transfer from writing traditional contracts to producing standardized smart contract templates, similar to the standardized traditional contracts that you’ll find on LegalZoom.

Other industries such as merchant acquirers, credit companies, and accountants may also employ smart contracts for tasks, such as real-time auditing and risk assessments.

Sirfitech sees smart contracts merging into a hybrid of paper and digital content where contracts are verified via Blockchain and substantiated by physical copy.

It’s only a matter of time until we see big traditional institutions turned into code and those who refuse to follow the wave of technology become obsolete.

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