Bitcoin has marked the birth of the Internet of Value, distributed accounting, and electronic payments without intermediaries… but the technology that makes this decentralized global payment system possible, Blockchain, also offers possibilities that go beyond cryptocurrencies such as Bitcoin, Litecoin, Dash, and Monero.
In a business context, this distributed accounting book that is blockchain can also be used to register tokens that guarantee digital identity, track merchandise, transfer titles over assets, safeguard documents that cannot be altered, or add intelligence to the execution of transactions.
However, even if the tokens on a blockchain are interesting themselves, the general idea is that these systems must represent verifiable processes. A modern commercial transaction does not simply consist in the transfer of “something”, but rather processes must be satisfied, verifications made, balances verified, etc. before the transaction. And that’s where smart contracts can help with these processes.
To provide a brief definition, smart contracts are small pieces of software that run in an autonomous and decentralized way within a blockchain. This means that the contract code is executed in each node of the blockchain network, and all must reach the same result independently.
A key feature of smart contracts is that in addition to executing the programmed logic, they can receive and store data, tokens, cryptocurrencies, or a combination of the aforementioned, and then decide in an autonomous manner what to do with them based on the predefined rules. For example, distribute them to other accounts, or to other smart contracts.
It is important to note that once published in the blockchain, smart contracts cannot be modified and their execution is autonomous. Therefore, and unlike traditional contracts, with smart contracts there is no possibility of non-compliance, censorship, fraud, or interference by third parties. And since it is a software application, there are no ambiguities or grey areas subject to interpretation, and their compliance status at any time can be easily verified. All this adds more confidence to transactions in a blockchain.
However, the revolutionary potential of smart contracts is not limited to the automatic execution of transactions, or the digital representation of a contract; since they are flexible pieces of software capable of solving any computer problem, it makes the construction of dApps (or distributed applications) possible. These are applications without a server or central control entity, which run through a computer network. They give rise to what is called Blockchain 2.0.
Although several development projects have already begun with objectives towards commercialization on these smart distributed platforms enabled by smart contracts, the truth is that this technology is still in its early stages and in constant evolution.
There are still many challenges to be solved before smart contracts and dApps can occupy a prominent place in society, but experts are working on their development.
Currently, many efforts are focusing on areas including: the standardization of technologies, their adaptation to business processes, the integration and coordination of multiple blockchains within a value chain, creating audit standards, regulations, services to facilitate administration and security. In particular experts continue to look for solutions to the challenges of scalability, to be able to expand the platform.
However, despite the difficulties and the current immaturity of the system, the future of the decentralized value exchange and dApps seems imminent. Blockchain technology is becoming increasingly popular and some consultants estimate that by 2022 smart contracts will be used by more than 25% of organizations worldwide.
In Argentina there are already several companies that are betting on this technology. For example, here at Belatrix we have a Blockchain center of excellence to help our customers understand and implement the technology. The center has research and development objectives, and provides value to organizations in Latin America and the USA, including to those which are even developing their own platform based on smart contracts.
The smart contracts revolution is coming.