The Value of Smart Contracts: In conversation with Sandy Khaund
When people talk about blockchain and Web3, one of the most commonly used terms is “Smart Contracts”. We invited Sandy Khaund, Founder / CEO of Credenza & General Partner at Mindspring Capital, to talk to us about one of the most crucial elements of the Web3 ecosystem and the opportunities it presents in sports.
Thanks for taking the time Sandy.
Let’s start with the basics: what are Smart Contracts?
Smart contracts are core elements of the most popular blockchains, including Ethereum, Polygon, Solana, and Binance. Essentially, they are containers of logic that run in a decentralized environment (the blockchain).
Importantly, they hold data, process data and provide secure semi-permeable access to the data, therefore are critical to the utility of the blockchain. When coupled with an interface, they are often described as distributed applications or “Dapps”.
They’re self-verifying due to automated possibilities.
They’re self-enforcing when the rules are met at all stages.
They’re tamper-proof, as no one can change what’s been programmed.
source: making effective use of smart contracts
Got it. How are they used?
The most intriguing applications of blockchain rely on smart contracts to perform the necessary operations for their functionality. These smart contracts use ‘standards’ which define a consistent set of methods that can be accessed to perform the required responsibilities.
Most cryptocurrencies are defined by ERC20 standards while most NFTs are defined by the standards of ERC721 and ERC1155. ERC20-compliant contracts support functions to transfer value (crypto) and check your balance, while the NFT-compliant contracts support functions such as minting, transfers, and setting metadata.
While cryptocurrencies and NFTs represent the most prevalent blockchain smart contracts, there are other intriguing contracts that have further extended the capabilities of the blockchain. Decentralized autonomous organizations (DAOs) are also among the better-known applications with smart contracts at their core. DAOs can be a little bit more sophisticated and nuanced, depending on the requirements defined by the members of the DAO.
In the sports applications of blockchains, we haven’t seen many high-profile projects go beyond these contracts. That leaves a lot of room for innovation.
So what does an innovative use of a smart contract, outside of sports, look like?
Perhaps the best advancements around smart contracts have happened in Decentralized Finance. Efforts like MakerDAO have managed to construct collateralized loans and an algorithmic stablecoin (called DAI), while managing governance using a DAO. The stablecoin adheres to the ERC20 specification, so it can be used just like any other cryptocurrency, but the system is incredibly powerful to perform those actions often performed by banks better than the banks themselves. (disclosure: I was on the Board of Directors at the Maker Foundation before it went full decentralized in December 2021).
With this powerful capability, It’s a wonder why so many people limit their thinking on the blockchain to these predefined contracts — and it’s no wonder why naysayers are so dismissive of the blockchain. They’ve managed to reduce it to these simple entities, much as some people reduced the internet to silly home pages in 1996. But the blockchain is a powerful programmable entity and the ability to extend existing contracts, as well as create new contracts that extend out the capabilities for sports teams, athletes, and leagues is something that needs to be better investigated.
Feels like this is going to get more technical pretty quick.
A short technical lesson. I promise it will be fairly painless.
In most smart contract languages, the code is object-oriented. This is exciting because it allows for inheritance. Inheritance allows you to take a contract definition and effectively extend it by “inheriting” all the functionality of the original contract and then adding unique additional functionality. Why is that important? Well, it allows a business to customize their blockchain data management to adhere to its unique business requirements while still conforming to the industry-accepted standards. In addition, object-oriented code has the ability to override functions, which means you can not only extend net new functionality, but you can also modify the behavior of the “parent” contract when you inherit from it.
OK, so why the lesson in object-oriented programming? Well, most blockchain solutions have accepted smart contracts as they’ve been broadly defined and focus on how to extend functionality off the chain. For example, token gating allows ownership provenance, understanding the ownership history, to be defined on the chain, but the actual permissioning happens off the chain.
To use an analogy, it’s like we’ve all agreed to vanilla ice cream and now we’re focused on putting toppings on that vanilla. And hey, who doesn’t love vanilla ice cream with whipped cream and chocolate sauce (at least in my pre lactose-intolerant days).
But what if you wanted to adjust the flavor of the ice cream itself?
Wow, okay. So that’s possible?
Sure. What if you wanted to innovate on the foundational technology because NFTs are too simple or don’t quite follow the strategy you seek? Where decentralized finance has managed to use cryptocurrencies as building blocks for something larger, innovators in the sports tech space need to consider NFTs and crypto as the beginning of the blockchain conversation, not the endpoint.
So, it’s time to experiment then?
Yes. The sports world can benefit from this level of innovation that we’re seeing in other spaces, but that will happen when we are willing to extend the innovation and push our thinking beyond NFTs and cryptocurrencies. Sports leagues, teams, and athletes have extensive business interests that can benefit from the blockchain and ubiquity of the blockchain happens when we expand beyond foundational elements. Crypto and NFTs should be the basis of innovation, not the destination.
Credenza is a Web3 technology company that helps “direct to fan” relationships while creating new revenue opportunities in the areas of advertising/sponsorship, content, ticketing, merchandise and game day executions.
Rohn Malhotra is a Co-Founder at Berlin based SportsTechX — Data & insights about SportsTech startups and the surrounding ecosystem. You can get in touch via LinkedIn or email.
