Smart contract success stories from blockchain’s pioneers
The technology industry is built on ideas, but Steve Jobs said that ideas are nothing unless executed. Smart contracts, a key technology underpinning the modern blockchain world, are a case in point. They’re a great concept, but pointless unless people write and use them. In this article, we will look at some people who are doing just that.
What makes a contract smart? Cryptocurrency guru and digital contract specialist Nick Szabo first described a smart contract in 1994 as a “computerized transaction protocol that executes the terms of a contract”.
This means that the contract, which is an agreement between multiple parties, can use electronic means to execute itself. In this sense, an electronic vending machine has a smart contract with its user when it dispenses food or drinks.
Contracts got smarter
Blockchain-based decentralized application platforms such as Ethereum and genEOS took this idea to the next level, though. They encode multi-party agreements and run it on computers under each participants’ control in a distributed blockchain environment.
That paved the way for contracts that could execute themselves with no central arbiter. They could send electronic assets between participants on the blockchain according to data acquired by that blockchain. That data could come from trusted external systems, ranging from commodities exchanges to transportation systems, or even blockchain-based IoT devices.
These smart contracts are, in short, programs that run on the blockchain. No one can tamper with the code for their own purposes because it is cryptographically protected and no one person controls it.
Smart contracts are useful in any situation where you need to decide something and transfer assets without relying on a single source of truth, or a single point of failure. The cryptocurrency press has been quivering with anticipation for years now, citing potential use cases for the technology, but real-world examples are relatively thin on the ground. As Jobs also said, “real artists ship”.
We have some real-world examples. In fact, when it comes to smart contract-based ventures that captured the public’s imagination, there’s one that stands out. If you have lofty ideals about smart contracts, though, you’re not going to like it. Sure, these concepts may change the world in the future, but there’s one initiative that is enjoying massive success with them right meow.
Launched in December 2017, CryptoKitties did for the blockchain what Pokemon Go did for augmented reality. It was a smart contract-form of entertainment with a trading element, drawing thousands of users and proving once again than anything with a cat in it wins the Internet.
The Ethereum-based online game allows people to buy and breed their own digital cats using Ether. Each digital puss has its own unique 256-bit genome code. When a user breeds two Cryptokitties, a smart contract-based genetic algorithm computes the new genome based on selection, crossover, and mutation. The smart contract consists of around 2000 lines and is written in Solidity, which is the de facto Ethereum smart contract language.
It may be silly, but boy do people love their cats. At the time of writing, users had traded more than 326,000 digital kittens on this digital network, representing more than 46,000 Ether (US$25m) in sales. The most valuable cat was worth more than $100,000 at the time it was sold. That’s $100,000 for nothing more than a smart contract. If that isn’t a success story, we don’t know what is.
Flight delay insurance
Perhaps you’re looking for something a little more grown-up. You won’t find much more sensible – or more frustrating – than flight delay insurance. This is a difficult business to be in, because policies often carry exclusions that leave customers unsure about whether they are covered. If they are covered, they do not know when they will be paid, and often have to jump through administrative hoops proving their delay first.
Insurance giant AXA launched Fizzy, an Ethereum smart contract-based application that puts flight delay insurance on the blockchain. AXA encodes coverage details into the smart contract and stored immutably on the blockchain. When a flight is delayed, the smart contract is notified and automatically compensates customers for flight delays lasting more than two hours via the blockchain without any human interaction.
Monitoring the supply chain
Smart contracts are helping in other areas of transportation, too. IBM and Maersk have developed a smart contract-based system called TradeLens to help drive efficiencies into the global supply chain.
TradeLens uses IBM blockchain technology to give multiple stakeholders a shared view of a single transaction while keeping sensitive details secret. The blockchain lets people track goods across international borders, following them through the complex stages involved in getting it from source to destination, on a per-container basis.
The private distributed ledger technology, for which participants will pay to use, uses data from IoT devices to track shipments, delivering information ranging from temperature control to container weight. So if a shipment of bananas gets too hot in transit, the retailer that must sell them at the end will know about it. IBM contributed to the open source HyperLedger blockchain project, so it has lots of expertise in this area.
The service had been in a 12-month trial and had already handled more than 150 million shipping events before it launched officially for early adopters in August 2018. It now involves 94 international logistics stakeholders.
There are other smart contract projects ripening on the vine. In Australia, the Commonwealth Bank worked with five Australian and international supply chain companies to ship 17 tonnes of almonds from Victoria to Germany as a demonstration of its smart contract-based TradeChain project.
Documenting who owns what
Sweden is on the verge of disrupting an entrenched industry: land title registry. In many countries, land titles are still registered manually in paper form, leaving the process subject to fraud or simple error. Putting this information on a blockchain governed by smart contracts helps to process the transfer of land titles in an orderly and immutable way.
In June, the country’s Lantmäteriet land title registry demonstrated a live transaction as part of its smart contract-based land registry system with the help of blockchain startup ChromaWay and financial firms SBAB Bank and Landshypotek.
The project, which could save Swedish taxpayers more than $106m, uses the contracts to record each step in a land title transfer process on the blockchain while automatically verifying the digital signatures of everyone involved. This is still an ongoing process, though, as stakeholders like the Swedish tax authority must be bought on board.
One aspect of the Swedish project is that it is based on a distributed ledger system outside of Ethereum or genEOS, the two better-known decentralized application smart contract-capable blockchains. ChromaWay’s Esplix smart contract system is behind this one, and it is an example of how private blockchain technologies are developing as an alternative to public architectures for select smart contract use cases.
New technologies naturally bring their fair share of hype and froth, but smart contracts are not always a solution looking for a problem. Entrenched industries ripe for innovation could benefit a great deal from these distributed programs, as long as designers can align the business interests of the various stakeholders and implement the technology correctly.
We’re still in the early days of this exciting technology, and as case studies emerge – both light-hearted and more serious – there is still everything to play for.