Smart contracts, a new paradigm
Smart Contracts provide a model that enables the execution of applications that automate the terms established in a contract, minimizing exceptions and reducing the need for intermediaries to verify their compliance and interpretation.
Executing these Smart Contracts on blockchain technology allows them to be self-executed in a transparent way for both sides, preventing changes in the content and the results of their execution. The range of possibilities they offer is as wide as our ability to imagine uses for them.
There are various platforms to run Smart Contracts. In fact, Bitcoin transactions are Smart Contract executions limited to a certain kind of operations. The most famous platform is Ethereum, as it managed to bring to life a strong network able to execute contracts while also including the elements which are necessary to simplify their development. However, as with Bitcoin, other platforms for managing Smart Contracts have appeared. On some of these platforms it is even possible to execute contracts compatible with Ethereum on Bitcoin’s network.
The application of Smart Contracts
As well as allowing us to programme and automate “traditional” contacts between people, Smart Contracts offer a whole new world of possibilities; for example, “things” can interact between each other and with people based on contracts that regulate the legal relationships. Our car will be able to automatically report that the brakes are worn down and ask for them to be replaced correctly, or if a part fails it will be able to determine if it was under warranty without anyone revising any parts nor the vehicle’s contract.
Among the applications of Smart Contracts there are two which are especially relevant due to the implications they have: ICOS (Initial Coin Offers) and DAOs (Decentralized Autonomous Organization).
- ICOs. During the past few months, ICOs regulated by a Smart Contract are proliferating; the Smart Contract establishes the rules for the acquisition of the new coin and automatically manages its issue and purchase.
- DAOs. Another very interesting application are DAOs, which bring contract automation to the governing of entire organizations, automatically managing the relations between the people and entities that form part (employees, investors) or interact (providers, clients) with the organization, including decision taking processes: what topics must be decided on, who can offer proposals, who will participate in the decision, what level of consensus is required, what reaching the objectives will imply, etc. This leads to organizations that live in a virtual world and are regulated by non-conventional contracts with a “legal” environment “on the fringes of the law”.