Smart Contracts — Evolution, trade-offs, and meshed Blockchains
In the last article, we shared our views on the potential adoption scenarios for the Blockchain. In this piece, we will explore the smart contract landscape and the potential scenario of a meshed network to structure a more effective smart contract protocol.
Smart Contracts via Permissioned vs. Permissionless Blockchains
Nick Szabo introduced smart contracts conceptually in the 1990s and explained the power of digital contracts in eliminating multiple intermediaries. Such digital contracts manage the execution of defined terms and conditions of a transaction involving multiple stakeholders. In a simplistic scenario, such contracts enable execution of “if X then Y” business logic. In a complex scenario, such contracts enable execution of, for example, a betting platform constituting players’ auction, team selection, and conditional bettings based on wallet balance and defined risk appetite.
So what stops this tech to take off?
- Weak infrastructure (e.g. low transaction throughput) to manage and set-up such smart contracts
- Lack of data privacy that has kept enterprises at bay who do not want to reveal the value and volume of the businesses exchanged with their suppliers and vendors
Enterprises, especially financial institutions, are in a frenzy to adopt Blockchains to realize the benefits of the distributed ledger tech. However, this movement led to the advent of Permissioned Blockchains addressing the above two challenges.
- Speedy transactions are driven by validation via a handful of full nodes on the chain defeating the censorship-resistant feature.
- Data privacy is managed via patch-like tech enhancements.
In the above case, deployed smart contract protocol becomes a parallel database, though a bit more efficient, managed by a central party similar to an enterprise-grade ERP.
Trade-offs and Meshed Blockchains enabling smart contracts
The leading hypothesis is that in the early stages of Permissionless Blockchain development, Permissioned Blockchain(s) would adapt per open source protocols’ advancement to bring the best for the participating enterprises. However, in a potential scenario, an inflection point will come when Permissioned Blockchain(s) will be replaced by Permissionless Blockchain(s) to optimize for the maintenance and computation costs incurred by enterprises.
Permissioned vs. Permissionless Blockchain for smart contracts inflection point thesis
The degree of decentralization enables transaction throughput and scalability, playing a balancing act with censorship resistance. Other solutions such as sharded transactions and Layer 2 developments on Ethereum could make this protocol a winner, however, with inter-operable solutions coming to fruition (e.g. Cosmos, Polkadot), a hybrid mesh of Blockchains could yield better and efficient structures.
The following exhibit explains a probable route smart contract platforms might take.
Note: This presents our broad view on how the smart contracts vertical pan out in coming decade or so
Summary
Space is developing at a neck-breaking speed and enterprises would need to have in-house talent to gauge what to adopt and at what time to maximize the returns on their Blockchain investments.
