AdLunam

In the Last episode of this seriesWe have talked about what “smart contracts” (or, perhaps more precisely, “self-application contracts”), and discussed in detail the two main mechanisms by which these contracts can have a “force”: intelligent and “facttum”. We have also discussed the limits of intelligent contracts and how an intelligent legal system for a contract could use a combination of human judgment and automatic execution to obtain the best possible results. But what is the interest of these contracts? Why automate? Why is it better that our relationships are regulated and controlled by algorithms rather than by humans? These are the difficult questions that this article and the following intend to tackle.

A story of two industries

The first advantage and the most obvious, the use of technology focused on the Internet to automate everything is exactly the same as we have seen Internet, and Bitcoin, already providing in the spheres of communications and trade: it increases efficiency and reduces obstacles to entry. A very good example of this effect offering significant advantages in the traditional world is the publishing industry. In the 1970s, if you wanted to write a book, there were a large number of opaque and centralized intermediaries that you will have to live before your book reaches a consumer. First of all, you would need a publishing company, which would also manage publishing and marketing for you and would provide a quality control function to the consumer. Second, the book should be distributed, then finally it would be sold in each individual bookstore. Each part of the chain would take a large cut; At the end, you would have the chance to get more than ten percent of the income from each copy as a royalty. Note the use of the term “fee”, which implies that you the author of the book is only another foreign part of the chain which deserves a few percent as a cut rather than, finally, THE The most important person without whom the book would not even exist in the first place. Now the situation is considerably improved. We now have printing companies, marketing companies and separate bookstores, with a clear and defined role for everyone and a lot of competition in each industry – and if you agree to keep it purely digital, you can simply publish on Kindle and get 70%.

Now consider a very similar example, but with a completely different industry: consumer protection, or more specifically without deposit. The sequestration is a very important function in trade, and in particular online commerce; When you buy a product in an online store or from a merchant on eBay, you participate in a transaction where none of the parties has a substantial reputation, and therefore when you send the default money, there is no way to make sure you will really get anything to show. The commitment provides the solution: instead of sending money directly to the merchant, you first send the money to an entire agent, and the entire agent awaits you to confirm that you received the article. If you confirm, then the entire agent sends the money, and if the merchant confirms that he cannot send the article, the entire agent makes your money. If there is a dispute, an arbitration process begins and the entire agent decides which side has the best case.

However, the way it is implemented today is managed by centralized entities and is launched with a large number of other functions. On the online market EbayFor example, Ebay plays the role of providing a server to the seller to host his product page, a search and price comparison function for products and a rating system for buyers and sellers. Ebay also has Paypal, who actually moves the seller’s money to the buyer and serves as an entire agent. Essentially, this is exactly the same situation in which the publishing of books was in the 1970s, although in fairness for ebay sellers obtained just over 10% of their money. So how can we do an ideal market with cryptocurrencies and smart contracts? If we wanted to be extremely on this subject, we could make the market decentralized, using a diaspora model to allow a seller to host his products on a specialized site, on his own server or on a Dropbox decentralized implementationUse a Namecoin type system for sellers to store their identity and keep a confidence network on the blockchain. However, what we are currently looking at is a more moderate and simple objective: to separate the function from the full -payment agent from the payment system. Fortunately, Bitcoin offers a solution: multi -use transactions.

Multisig presentation

Multisine transactions allow a user to send funds to an address with three private keys, so you need two of these keys to unlock funds (multisigs can also be 1 of 3, 6 out of 9, or something else, but in practice 2 out of 3 is the most useful). The way of applying it to the whole is simple: creating a sequestration of 2 out of 3 between the buyer, the seller and the entire agent, ask the buyer to send them funds and when a transaction is completed the buyer and the seller sign a transaction to complete the climbing. If there is a dispute, the entire agent chooses which team has the more convincing case and signs a transaction with them to send them the funds. Technologically, it is slightly complicated, but fortunately Bitre has created a site that facilitates the process for the average user.

Of course, in its current form, Bitrated is not perfect, and we do not see as much Bitcoin trade by using it. The interface is undoubtedly not as simple as it could be, especially since most people are not used to the idea of ​​storing specific links for a few weeks, and it would be much more powerful if it was integrated into a full -fledged merchant set. A design could be a Kryptokit-The web applications, showing each user a “open” purchasing and sales list and provide a button “finalize”, “accept”, “cancel” and “dispute” for everyone; Users could then interact with the multisig system as if it were a standard payment processor, but then get a notification to finalize or challenge their purchases after a few weeks.

But if Bitrated gets its correct interface and begins to see mass adoption, what will it accomplish? Again, the response is a reduction in barriers to the entrance. Currently, it is difficult to enter consumer and arbitration. To be a whole service, you must essentially build an entire platform and an ecosystem, so that consumers and traders work via you. You also cannot be the one who hates money – you must also be the one who transfers money in the first place. Ebay must have and control PayPal so that half of its consumer protection works. With Bitrated, it all changes. Anyone can become an entire agent and referee, and an eBay type market (perhaps Cryptothrift or the next Egora) can have a rating system for referees as well as for buyers and sellers. Alternatively, the system could manage refereeing in the background in a similar way to the way Uber manages taxi drivers: anyone could become a referee after a process of verification, and the system would automatically reward the referees with good grades and dismiss those with bad grades. The costs would drop, probably considerably lower, even the 2.9% billed by Paypal alone.

Smart contracts

Intelligent contracts in general take this same basic idea and push much further. Instead of counting on a platform like Bitfinex to cover your Bitcoin holders or speculate in both directions with a high lever effect, you can use a financial derivative contract based on the blockchain with a decentralized order book, leaving no central party to take costs. The continuous cost of maintaining an exchange, with operational security, servers management, DDOS protection, marketing and legal expenses, could be replaced by a single effort to write the contract, probably in less than 100 lines of code, and another unique effort to do a fairly enough interface. From that moment, the whole system would be free, except for network costs. File storage platforms like Dropbox can be replaced similarly; Although, as the hard disk space costs money, the system would not be free, it would probably be much cheaper than today. This would also help to equalize the market by facilitating the participation on the side of the offer: anyone with a large hard drive, or even a small hard drive with an additional space, can simply install the application and start earning money to rent their unused space.

Instead of relying on legal contracts using expensive judicial systems (and often, in particular in international circumstances and poor countries, ineffective judicial systems) or even moderately expensive private arbitration services, commercial relations can be governed by smart contracts where the parts of the contract which need human interpretation can be separated into many specialized parties. There could be judges specialized in determining the delivery of or not a product shipped (ideally, it would be the postal system itself), judges specialized in determining the question of whether the conceptions of web applications respond to specifications, judges specializing in the decision to settle certain classes of real estate insurance complaints with costs of $ 0.75 by examining satellite images, and contracts that integrate their intelligence. Specialization has its advantages, and this is the reason why the company has exceeded the race after having worn with stone clubs and picked up of berries, but one of its weaknesses has always been the fact that it requires intermediaries to manage and operate, including intermediaries specifically to manage the relationship between intermediaries. Intelligent contracts can eliminate the second category almost completely, allowing an even higher degree of specialization, as well as lower barriers to the entry into each category now narrowed.

However, this increase in efficiency is only part of the puzzle. The other part, and perhaps the most important, has to do with a subject that many defenders of the cryptocurrency are expensive: to reduce confidence. We will cover this in the next episode of this series.