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Blockchain Contracts: Logical and non-logical!


Dec 04, 2017 Posted /  9060 Views


Blockchain Contracts: Logical and non-logical!

Blockchain Smart Contracts

Smart contracts, where things get really interesting is the applications of blockchain beyond cryptocurrencies like Bitcoin. Given that one of the underlying principles of the blockchain system is the secure, independent verification of a transaction, it's easy to imagine other ways in which this type of process can be valuable. Expectedly, many such applications are previously in use or increase.

The probably the most exciting blockchain development after Bitcoin, smart contracts are blocks that contain code that must be executed in order for the contract to be fulfilled. The code can be anything, as long as a computer can execute it, but in simple terms it means that you can use blockchain technology (with its independent verification, trustless architecture and security) to create a kind of escrow system for any kind of transaction. As an example, if you're a web designer you could create a contract that verifies if a new client's website is launched or not, and then automatically release the funds to you once it is. No more chasing or invoicing. Smart contracts are also being used to prove ownership of an asset such as property or art. The potential for reducing fraud with this approach is enormous.

What is ‘Logical’ about Smart Contracts?

There are some advantages of using Smart Contracts and precisely Ethereum Smart Contracts.

Unambiguous: Computer codes are unambiguous, unlike legal contracts which can have a different interpretation. Since they are written in a well-defined language, a specific input always leads to the same output.

Authentication: Smart Contracts does not need a central authority to determine the authenticity and order of the messages. Since they are present on the Blockchain, each participant of the network creates a pair of private and public keys, and distributes its public key once to the other participants. Now, each message is signed with the private key before the message is distributed across the network.

Anti-Spam: Blockchain is a peer-to-peer network, in which whenever a transaction happens, the information about it spreads rapidly to the other nodes through a process called ‘relaying,’ which are randomly connected to each other. In a Public Blockchain, since the network is decentralized, each individual node assesses the new transactions as they come in, and decide whether or not to relay them.

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Data Proofs: In the blocks of a Blockchain, apart from transactions, each block also has a compact ‘header,’ which contains important information such as a timestamp and a link to the previous block. This block header alone is the input for the hashing algorithm in many Public Blockchain which is based on PoW (Proof of Work) hashing.

What is ‘Non-Logical’ about Smart Contracts?

Let’s compare Ethereum and Bitcoin in this regard. An unconfirmed Bitcoin transaction can be reversed. However, unconfirmed Ethereum transaction has no predictable outcome at all. Currently, Ethereum doesn’t even process unconfirmed transactions. But, in case, if an Ethereum node necessities to process transactions proximately, it would need to rewind and repetition them in the accurate order. Reprocessing all these transactions is a huge waste of effort, and prevents external processes from reading the Ethereum database concurrently.

In contrast, in Bitcoin, each transaction explicitly states its relationship to other transactions. It has a set of inputs and outputs, in which each input is connected to the output of a previous transaction which it ‘spends.’ Thus, there are no other dependencies to worry about. Thus, a Bitcoin node can be sure that the transactions are independent, and it can process them in any order as long as two bitcoin transactions don’t attempt to spend the same output, and the output of one doesn’t lead to the input of another.

Computer Logic V/s Human Judgment

There are too many additional factors to consider in initiating the default management process. When someone defaults, it is not just about logic, but also about the reason. When reason is necessary, the default management process should consider consulting to a human, rather than a computer code. Sometimes a reason is more important than a logic.

Similarly, the case for breach of the legal agreement. Contract breaches usually have consequences, such as paying for the damage caused. But there can be sound commercial reasons for breaching a contract, which needs to be taken into the account. Locking everything away in a fully-automated Smart Contracts doesn’t make sense in this regard.

Conclusion

Smart Contracts provide this platform that will allow the distribution of costs, risk, identity and more for building next generation distributed applications. These capabilities help unlock the power of blockchain based applications, while taking advantage of the flexibility and power of the cloud, in a way that works in modern enterprise environment.

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Tags: blockchain applications of Blockchain blockchain system Smart contract Blockchain Contracts logical

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