Benefits, Drawbacks And How To Tackle Them?
Smart Contracts are more than just automated pieces of code. Since the advent of blockchain technology, smart contracts have automated various functions. The term was introduced by Nick Szabo, a cryptographer, in 1998, along with his invention of a digital currency called “bitgold”. Over the years, smart contracts have been used for cryptocurrency, gambling, contract execution, defi, DAO voting, etc.
What Is A Smart Contract?
A smart contract is a coded program executed when certain conditions are met. These executions can result from voting, auction bidding, releasing money to a gambling winner, etc. Such smart contracts are used when trust is a significant factor. It is natural to assume that people do not trust each other on the web. Smart contracts ensure proper payment of dues, transparent voting, etc., in such environments.
Backbone Of Smart Contract
There are primarily two technologies that act as the backbone or backbones of smart contracts. They are Virtual Machines and Blockchain Oracles.
Virtual Machines are the nodes on which smart contracts run. It is very similar to a virtual computer; just add the decentralisation nature of blockchain. These virtual machines utilise the resources from the node for their processing power. The most popular virtual machine is Ethereum Virtual Machine. Other new but powerful virtual machines are:
- Hyperledger Burrow
Smart contracts have mostly worked on executing as per internal conditions that have been hard-coded. But how do we ensure that payment is made when there is a bet on a future sports match? The answer is Blockchain Oracles. These programs connect smart contracts to the outer world in a secure way. Such a service, Chainlink, is the most popular blockchain oracle with a market size of approximately $6.4 Billion.
Current And Potential Applications
- Banking: Speeds up transactions and secures transaction records.
- Initial Coin Offering: Ensures proper allocation of coins based on fair value factors and refund of excess funds.
- Prediction: These are the applications of smart contracts for betting, gambling, etc. Forecasts(gambling) cannot become mainstream due to the risk involved and hence use smart contracts to establish trust.
- Payment of Dues: Upon delivery is a primary use case for smart contracts that help remove escrow mechanisms.
- Digital Identity: Smart contracts ensure that identities remain safe in the digital world. Further, they can easily ensure that identities remain anonymous if required.
Smart Contracts have a lot of potential applications, from ticketing to complex financial instruments.
- Company Finance: For issuing shares, bonds, certificates of deposits and managing the payment terms associated with them.
- Corporate Governance: Recording votes of boards, management and suggestions by employees in a secure manner.
- Dispute Resolution: Securing transaction records and payment records for products, shopping, services in a faceless, anonymous and easy way that can both protect customer identity as well as company records.
- Autonomy: Parties can be ensured of payments and fully automated contract execution.
- Anonymity: Secures consumer rights and trust like never before.
- Speed of execution
- The backup of information is stored in other nodes
- Accuracy of delivering benefits to rightful receivers.
Almost everything in the world has its fair share of drawbacks. Smart contracts suffer primarily from loopholes that are often overlooked. Since you cannot edit them after being deployed, these loopholes remain until the day someone exploits them to cheat or steal funds. Blockchain startup MonoX Finance lost $31 million due to one such loophole. It is important to notice that most of these loopholes are primarily due to human error due to a lack of experience and proper security audits.
Solutions From Global Vox
Experience: With over two decades of experience in serving the corporate and retail industry with impeccable service, Global Vox ensures quality checks before delivering services. A benefit of the experience is that we know how loopholes are created and how to avoid them best.
Director@GlobalVox | Founder - BiG Deal - blockchain based auction platform | Certified crypto and blockchain expert | ICO-IDO consultant