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Blockchain 2.0 - From Bitcoin Transactions to Smart Contract applications

by Jerome Kehrli


Posted on Tuesday Nov 22, 2016 at 09:29PM in Computer Science


Since Satoshi's White paper came online, other cryptocurrencies have proliferated on the market. But irrespective of the actual currency and the frequently debated deflation issues, the actual revolution here is the Blockchain protocol and the distributed computing architecture is supports.

Just as thirty years ago the open communications protocol created profitable business services by catapulting innovation, the blockchain protocol has the potential of being the same kind of breakthrough, by offering a just as disruptive foundation on which businesses start to emerge. Using the integrity lattice of the transactions, a whole suite of value trading innovations are beginning to enter the market.

The key innovation here are Smart Contracts. This relatively new concept involves the development of programs that can be entrusted with money.

Smart Contracts are autonomous computer programs that, once started, execute automatically and mandatorily the conditions defined beforehand, such as the facilitation, verification or enforcement of the negotiation or performance of a contract.
They are most of the time defined in a Programming Language, which in the case of the Ethereum Blockchain 2.0 technology form a Turing Complete Programming Language.
Smart Contracts are implemented as any other software program, using conditions, loops, function calls, etc.

If blockchains give us distributed trustworthy storage, then smart contracts give us distributed trustworthy computations. To illustrate a possible use of smart contracts, let's take the example of travel insurance: finding that 60% of the passengers insured against the delay of their flight never claimed their money, a team created during a hackathon in London in 2015 an Automated Insurance system based on smart contracts.
With this service, passengers are automatically compensated when their flight is delayed, without having to fill out any form, and thus without the company having to process the requests. The blockchain's contribution here consists in generating the confidence and security necessary to automate the declarative phases without resorting to a third party.

The main advantage of putting Smart Contracts in a blockchain is the guarantee provided by the blockchain that the contract terms cannot be modified. The blockchain makes it impossible to tamper or hack the contract terms.
By developing ready to use programs that function on predetermined conditions between the supplier and the client, smart programs ensure a secure escrow service in real time at near zero marginal cost.

Smart Contracts enable to reduce the costs of verification, execution, arbitration and fraud prevention. They enable to overcome the moral hazard problem. The american cryptograph Nick Szabo is deemed to be the inventor of the concept, whom he spoked about in 1995 already. He used to mention the example of a rented car, whose smart contract could return the control to the owner in case the renter forgives the paiements.
Interestingly, as a sidenote, Nick Szabo is also believed by some to be one of the person behind the Satoshi Nakamoto identity.

In a general way, Smart Contracts from the heart of the Ethereum blockchain. Even if Rootstock aims at enabling the implementation of Smart Contracts on the bitcoin blockchain, the development of Smart Contracts technology is really rather related to Ethereum. The next versions of Ethereum are increasingly targeted to offering end users an App-Store-like User Experience to Smart Contracts.

This article intents to be a pretty complete introduction to Blockchain 2.0 technology and Smart Contract applications, detailing both of them as well as list the state of the state of the art of possible use cases being currently studied or discussed.
A big part of this article focuses on the Ethereum blockchain.

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