Smart Contracts and the Blockchain: An Introduction

Ahead of tomorrow’s Bitcoin and Blockchain Leadership Forum event Smart Contracts and Investment Banking: opportunities and challenges we give a short introduction to the topic.

Firstly, let’s begin by defining the blockchain,

Blockchain is a secure way of online transaction. A blockchain (previously block chain) is a distributed database that maintains a continuously-growing list of records called blocks. Each block contains a timestamp and a link to a previous block. Importantly, the data in a block cannot be altered retrospectively.

Blockchain technology is much broader than just bitcoin.

According to Blockchain Technologies

“The levels of robust security achieved by public cryptocurrencies have demonstrated to the world that this new wave of blockchain technologies can provide technological benefits very similar to what the internet has done.

However, blockchains are a very powerful technology, capable of performing complex operations, capable of understanding much more than just how many bitcoins you have currently have in your digital wallet.”

This is where the idea of smart contracts come in…

What are Smart Contracts?

Smart Contract is a term used to describe computer program code that is capable of facilitating, executing, and enforcing the negotiation or performance of an agreement (i.e. contract) using blockchain technology. The entire process is automated can act as a complement, or substitute, for legal contracts, where the terms of the smart contract are recorded in a computer language as a set of instructions.

According to Josh Stark of CoinDesk: the term hasn’t a settled definition at the moment. The idea is hyped to the public as a central component of next-generation blockchain platforms, and as a key capability for any practical enterprise application.

The term Smart Contract has been highly criticised as the term can be is misleading as it emphasises a single narrow use case. Smart contract programs can themselves hold balances of cryptocurrency, or even control other smart contract programs. Once they are created, they can act autonomously when called to perform an action. For this reason, many prefer the term “smart agent”, analogous to the more general concept of a software agent.

Traditional vs. Smart Contracts

Traditional physical contracts, such as those created by legal professionals today.

• Legal language
• Printed documents
• Rely on third parties for enforcement
• Time-consuming
• Can be ambiguous
• Rely on judicial systems to remedy which can be costly & time-consuming

Smart contracts, often created by computer programmers through the help of smart contract development tools, are entirely digital and written using programming code languages such as C++, Go, Python, Java. This code defines the rules and consequences in the same way that a traditional legal document would, stating the obligations, benefits and penalties which may be due to either party in various different circumstances. This code can then be automatically executed by a distributed ledger system.

Example of a Smart Contract

Smart Contracts on the blockchain could transform the music industry by ensuring artists get a fairer deal by establishing a more direct relationship between creators and consumers. One example of a Fair Trade Music Database is by PledgeMusic, as explained in a recent TechCrunch article,

“Companies like Benji Rogers’ online music platform PledgeMusic have published a comprehensive blueprint for the Fair Trade Music Database, a globally decentralized blockchain-based ledger that can solve the problems of ownership, payments and transparency.

Creators can upload their music and the associated metadata on the ledger. Companies and consumers can search and play the music of their choice off the ledger, and smart contracts will ensure that the owner(s) of the content will be paid automatically for its usage.”

The future of Smart Contracts

Join tomorrow’s Bitcoin and Blockchain Leadership Forum event to discuss the future opportunities and challenges for Smart Contracts or follow the hashtag #BBLFsession from 8.30am GMT.

Speakers include: Dr Lee Braine, Barclays Investment Bank CTO Office

Dr Lee Braine, Barclays Investment Bank CTO Office, will be sharing his views on the development of smart contracts. He is the author of a recent report on Smart Contracts: Smart Contract Templates which you can read here.