OK, that’s probably not actually going to happen. However, smart contracts, smart assets, and unique blockchain protocols like MXC are making it possible for contracts and agreements of many kinds to become self-enforcing. The time and expense saved by removing even the possibility of fighting for agreed contract rights could be the dawn of a whole new economic reality.
In this new world, absolutely trusted transactions can be carried out between mutually anonymous parties. You don’t need to know who you are dealing with. You don’t need to know how to contact them, or who to complain to if one party does not comply — the blockchain network does all the complying for you both. Such contracts are not just utterly transparent, they are utterly irreversible. No courts, no lawyers…. And if the contract is based on the exchange of cryptocurrency or another kind of smart asset, no banks.
Someone probably still has to pay taxes, though.
It also raises the specter of an entirely new bane on the business world — the lawyer/coder, combining all the things that make both beasts annoying to deal with — but hey, that part might not even happen!
What are ‘smart contracts’? Is that a thing now?
Indeed it is. Let me start with an analogy. A contract is (or should be) like a program for the legal system. You put the program in one end, wheels turn, gavels bang, and a perfectly predictable result comes out the other end cheaply, and without any fuss or hassle.
OK, you can stop laughing. The legal system has huge issues, no matter where you are in the world. It takes huge amounts of time to argue a case in court, so businesses spend slightly less money making their contracts less likely to need to go to court. No matter what happens, a lot of money is spent on lawyers.
But what if that contract could literally be reduced to a program — to lines of absolute code? And what if it could be fed into some sort of equal-access, dispassionate, utterly reliable and incorruptible computer system? Like the kind, we’re building to handle cryptocurrency transactions and other blockchain innovations?
That’s exactly what smart contracts are. They self-execute in the same way that all code does. Everything meant to happen between the buyer, the seller and any third parties are laid out precisely in the code. There is no ‘judgment’, no ‘reasonable person standard’, and no argument. You both agree by introducing the code to a decentralized, distributed blockchain network, and the network spits out results instantly, and on an ongoing basis.
…And what does it look like, in practice?
That varies a bit from network to network. Almost anyone who has read this far knows how effectively Etherium has come to dominate the field of smart contracts, but they don’t define the technology.
First, the MXProtocol at the heart of MXC is being designed from the beginning to be more than just a coin vehicle. At its heart is a ‘data trade network’ that leverages the sharing economy to form very wide, efficient networks. But more importantly, MXC provides tools for companies to build asset-backed securitization. This is an entirely new way to trade both data and real-world assets with all the ease, certainty and transparency that smart contracts have promised.
It ensures that sensitive data is not shared randomly across the distributed network, an issue so many other solutions do not address. Only the buyers receive access to the goods — virtual or tangible — and only the parties actually involved know how much was paid. That data can only ever be allocated to a single source, so there is absolute certainty that it has not been reproduced. That is something even traditional contracts cannot offer.
How, exactly, does blockchain technology fit into all this?
The entire process is based on the presence of a blockchain network that all parties to the smart contract can access. They have actually been in use for some time, and work shockingly well.
The idea was first put forth by Nick Szabo in 1994. Szabo invented the first virtual currency in 1998 (yes, ten years before Bitcoin). Some say Szabo might be the Bruce Wayne to Satoshi Nakamoto’s Batman, but that is groundless, irresponsible speculation.
According to Szabo’s 1994 model, computerized transaction protocols would execute coded contracts to become the then-seemingly-limitless internet’s new economic basis. It was imagined that this would work best with so-called synthetic assets — bonds, options, futures and the like. Entirely new, self-executing securities could be crafted to combine various aspects of these assets, and traded in a completely standardized, no-questions-asked, extremely low overhead manner. The terms could be ridiculously complicated if desired because no matter how dense the ‘contract’, a computer could spit out the end result practically as soon as the code was submitted.
This should all sound familiar, as it has become very common in derivatives trading, even before the blockchain came along.
Szabo also foresaw using self-executing smart contracts to exchange real-world assets, though. Or at least, digitally-controlled access to real-world assets. If your bank account fails to cough up for your smart-car financing, the smart contract could simply turn off your ability to access it with your coded key. That access might be granted instead to a bailiff or repo man.
This application has its limits, of course. It could never revoke your access to, say, a ham sandwich. Worse still, it has all the traditional requirements of knowing exactly who you are dealing with and where they are.
This was the beginning of the modern smart contract. Pre-blockchain crypto-technologies involved contracts that could only be executed by both parties ‘signing’ the agreement with their personal digital keys.
But once these distributed blockchain networks were finally developed, the real potential for smart contracts began to be perceived.
Leaving us at the dawn of some very big changes…
Established players like Etherium will have a lot to say about how smart contracts come to be seen by the financial community at large. However, MXC will also define their own corners of this limitless new economy. Properly monetizing the IoT might, in the end, be more important than forcing the financial authorities to find new ways to enforce securities trading standards.
Originally published here.