Block chain technology can be described as a distributed database which is encrypted and is used for recording data. It can also be referred to as a digital ledger which is accessible across hundreds or thousands of computers. It is not necessary that block chains are to be kept in a specific place. Block chains have stated to disrupt the sector of financial services and this technology underpins digital currency with the use of bit coin transaction. “The block chain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.” (Bailis, Narayanan & Miller, 2017). With the usage of bit coin technology in the financial sector, participants are allowed to interact directly and carry out various transactions across internet; in this case any third party would not be able to interfere in the transactions. These transactions with the help of block chain would not share any personal data about the participants. Along with this, it also creates a specific transaction record with the help of encryption done to the identified data.
This essay discusses regarding block chain and a specific innovation under block chain. The innovation selected in this essay is smart contract. It also discusses the advantages and uses of smart contracts in details.
The most important feature of block chain is that there is rarely any chance of data breach; this means data saved in the form of tables in block chains can never be accessed by unauthorized users. In contrast to the traditional processes, block chains usually save multiple copies of the same data. This makes it challenging to carry out a cyber attack or data breach attack. The block chain technology consists of all the features required to resist a fraud. This technology also has the potential to revolutionize numerous sectors of business along with making the processes smarter, transparent, secure and efficient as compared to various traditional processes of business. “As revolutionary as it sounds, Block chain truly is a mechanism to bring everyone to the highest degree of accountability. No more missed transactions, human or machine errors, or even an exchange that was not done with the consent of the parties involved. Above anything else, the most critical area where Block chain helps is to guarantee the validity of a transaction by recording it not only on a main register but a connected distributed system of registers, all of which are connected through a secure validation mechanism.” (Chen, Xu & Gao, 2018). Smart contracts are one of the best innovations of block chain.
The most useful advantage of smart contracts is that it is a decentralized system that lies between two parties. People do not need to pay any intermediate party. Along with this it also saves time as well as conflict. Inspite of having numerous problems but can never be denied that smart contracts are faster and cheaper (Savelyev, 2017). This is much more secured than various traditional systems. “The classic example used to demonstrate smart contracts in the form of code executing automatically is a vending machine. Unlike a person, a vending machine behaves algorithmically; the same instruction set will be followed every time in every case. When you deposit money and make a selection, the item is released. There is no possibility of the machine not feeling like complying with the contract today, or only partially complying (as long as it is not broken). A smart contract similarly cannot help but execute the prespecified code. As Lessig reminds us, “code is law” in the sense that the code will execute no matter what. This could be good or bad depending on the situation; either way, it is new kinds of situation in society that will require a heavy accommodation period if block chain-based smart contracts are to become widespread.” (Cohn, West & Parker, 2017) Nowadays banks as well as government are making use of this system to great extent. In the format of smart contracts, the contracts are turned into various computer codes, stored and then replicated on the system. These codes are then supervised by a particular network of computers. These computers are run by block chains. This might also result in ledger feedback like receiving a product or service, transferring money and many more.
Smart contacts help people share property, money, shares or anything that possesses high value in a transparent method. The method is also conflict free and the services of a middle man are avoided (Fairfield, 2014). The operation of a smart contact can be best defined by comparing it with the operations of vending machines. Usually in order to get hold of a document, people go to a lawyer, pay him and then wait until the overall processing is over and the documents are handed over to the person. “The potential is great for people in the informal economy to exploit the block chain’s middleman-free way to exchange assets and information and its irrefutable public record that’s free from the control of any one central institution.” In the process of smart contract people just drop a bit coin in the vending machine which is also known as ledger, the user gets hold of his desired documents like driving license, escrow or any other document (Park, Lee & In, 2017). Smart contracts define the rules as well as penalties similar to the traditional process of contracting. It also enforces the obligations automatically.
An example of smart contract is that suppose someone rents an apartment from an owner. They can do it with the help of block chain by buying through crypto currency. The person receives a receipt that is held in their virtual contract, the owner provide the renter an entry key that is digital in nature (Governatori, Idelberger & Milosevic, 2018). This key would come to the rented by a specified date. In case the key does not execute in time, the block chain automatically releases the refund of the amount. If the owner sends the key before the rental date, function holds it and releases both the key as well as fee to the owner and the renter when the date would arrive. This system of smart contracts work on the premise called If-Then, this case is witnessed by a huge number of people. This system provides a delivery without any fault. If the key is provided by the owner, he would surely be paid and of the renter pays a specific number of bit coins; the renter would surely receive a key (Iansiti & Lakhani, 2017). The document gets cancelled automatically after a specific time. The code can never be interfered by either the owner or the renter. This is because the participants are altered simultaneously.
People can use smart contracts for all types of situations which range from insurance premiums to financial derivatives, legal processes, crowd funding agreements and financial services. a code has been provided for basic contracts that were written on Ethereum block chain. Contracts are encoded on any kind of block chain and Ethereum is widely used because it gives a huge processing capability (Levy, 2017). A smart contract can formalize relations among institutions, people and assets that they own. Block chain can be defined as the catalyst for implementing smart contracts. Smart contracts are able to track performances in real time; it can also bring about huge cost savings. Controlling and compliance happens very often. For getting external information, smart contract requires data oracles that feed the smart contract with the external data. Smart contracts are self-executing, self-verifying and tamper resistant (Omohundro, 2014). Smart contracts are able to turn various legal obligations into the automated processes, it can also guarantee a high degree of security, and it also reduces reliance on various trusted intermediaries. Smart contracts decrease the transaction costs.
Block chain as well as smart contracts have potential of disrupting various industries. Use cases are found in insurance, banking, e-government, energy, telecommunication, film industry and music industry, mobility, art world, education and many similar fields (Liang, Han & Guo, 2018). Smart contracts use cases that range from simple to complex. Various times stamping services like semi-governmental, governmental and ascribe registries are some examples for some simple technological use cases. Various decentralized organizations that are autonomous in nature are most complex form of the smart contracts. An example of such smart contract is DAO in 2016.
Figure 1: smart contracts- simple to complex
(Source: Magazzeni, McBurney & Nash, 2017, p. 178)
This fact has to be considered that block chain is a new technology. Due to this reason various industries might adopt smart contracts quite later compared to others especially if these industries include various government regulations of if the use cases need effects of high network such as adoption of widespread technology with supply chain and standardization.
Conclusion
From the above essay it can be concluded that block chain is a new technology that has been used by numerous industries for numerous purposes. Usually industries might fear in using block chain technology due to its complexity at higher level. The new innovation that the essay discusses about includes smart contracts. These contracts are used by people widely. The topic is described in details in the discussion part of the essay.
References
Bailis, P., Narayanan, A., Miller, A., & Han, S. (2017). Research for practice: cryptocurrencies, blockchains, and smart contracts; hardware for deep learning. Communications of the ACM, 60(5), 48-51.
Chen, L., Xu, L., Gao, Z., Lu, Y., & Shi, W. (2018). Tyranny of the Majority: On the (Im) possibility of Correctness of Smart Contracts. IEEE Security & Privacy, 16(4), 30-37.
Cohn, A., West, T., & Parker, C. (2017). Smart After All: Blockchain, Smart Contracts, Parametric Insurance, and Smart Energy Grids. Georgetown Law Technology Review, 1(2), 273-304.
Fairfield, J. A. (2014). Smart contracts, Bitcoin bots, and consumer protection. Washington and Lee Law Review Online, 71(2), 36.
Governatori, G., Idelberger, F., Milosevic, Z., Riveret, R., Sartor, G., & Xu, X. (2018). On legal contracts, imperative and declarative smart contracts, and blockchain systems. Artificial Intelligence and Law, 26(4), 377-409.
Iansiti, M., & Lakhani, K. R. (2017). The truth about blockchain. Harvard Business Review, 95(1), 118-127.
Levy, K. E. (2017). Book-smart, not street-smart: blockchain-based smart contracts and the social workings of law. Engaging Science, Technology, and Society, 3, 1-15.
Liang, J., Han, W., Guo, Z., Chen, Y., Cao, C., Wang, X. S., & Li, F. (2018). DESC: enabling secure data exchange based on smart contracts. Science China Information Sciences, 61(4), 049102.
Magazzeni, D., McBurney, P., & Nash, W. (2017). Validation and verification of smart contracts: A research agenda. Computer, 50(9), 50-57.
Omohundro, S. (2014). Cryptocurrencies, smart contracts, and artificial intelligence. AI matters, 1(2), 19-21.
Park, J., Lee, D., & In, H. P. (2017). Saving deployment costs of smart contracts by eliminating gas-wasteful patterns. International Journal of Grid and Distributed Computing, 10(12), 53-64.
Savelyev, A. (2017). Contract law 2.0:‘Smart’contracts as the beginning of the end of classic contract law. Information & Communications Technology Law, 26(2), 116-134.
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