What (The Hell) Is A Smart Contract?

Another good meeting of the BitcoinBlockchain Leadership Forum today, with the focus on practical use-cases for distributed ledgers and grasping at the nebulous concept of 'smart contracts' (links are to my own recent posts on these topics). 

In particular, we saw good, productive tension between Bitcoin blockchain purists who are intent on coding pretty much every element of a transaction into the blockchain; and those who see distributed ledgers as (also) playing a more limited role as just one layer or component in a broader array of gadgetry involved in any contractual scenario.

In my view, both approaches are valid but which 'wins' will depend on the use-case. And the development of the Internet demonstrates the technology will be used in ways no one intended anyway.

So, for my money, the definition of a 'smart contract' needs to be very broad, and I've suggested:

"an agreement performed via any number of applications, devices, networks and messages, which may involve entries in a distributed ledger."

This definition flows partly from a great discussion I had with Alex Amsel of Bitshake recently. I made the point that distributed ledgers seem most useful where a specific item is somehow dealt with or used very frequently and by many people or entities. Alex added a third condition: the participants are running different proprietary software, operating systems and/or devices - in other words they have an expensive interoperability challenge.

So a 'smart contract' might just be written in Word format, or html, and not embedded in a distributed ledger at all. But the subject matter of the contract - the rights to play a song, or rent a shipping container or space on a truck - might be 'hashed' into the ledger, and users' machines could interact using that hash, triggering instructions to pay the contractual amount to a certain account. Multi-factor authentication as one step in the contractual process (e.g. identify checks for anti-money laundering) is another example.

At the forum, there was mention of locating, booking and paying for a car space as another example. This was dismissed by lots of people who said you can already do this without a distributed ledger - the parking space is already entered in the systems of the council's chosen payment service provider. But that means I need to know which municipality I'm in to find the right payment app, download it and register a payment method before paying (I changed cars recently, so I have to re-do all that). And that inaccessibility is partly a function of having to cover the cost of expensive proprietary systems. But if parking spaces were 'hashed' in an openly accessible public ledger, couldn't our smartphones find and pay for them using that code and our own chosen payment method?

Anyhow, the point is not that we necessarily need distributed ledgers to pay for parking or any other specific use-case, but that once people begin using distributed ledgers more widely, tons of other apparently trivial uses become feasible and worthwhile. Conversely, a comparatively trivial but widely shared use-case might unleash more widespread adoption, as happened with text messaging (I'm not suggesting that parking will do it, by the way).

Of course, Bitcoin users will be screaming at their screens by now, if they've got this far. They'll be shouting that Bitcoin has already unleashed distributed ledgers. 

They're probably right.

1001 Use Cases For Distributed Ledger Technology...

Virtual currencies are so last year. This year is about all the other uses for the underlying technology - the blockchain and other distributed ledgers.  

The number of use-cases is starting to snowball with every discussion about scenarios in which a certain item is dealt with many times by many parties. That's because it will be more efficient and cost-effective for the item to be represented by a 'hash' in the ledger, and each transaction related to that item to be 'hashed' so they are available to any computer running the same language/protocol, rather than dealing with that using 'old' technology. Even though the ledger is openly accessible to everyone's machine, confidentiality can be guaranteed using encryption, so that only those computers with the right private key could unlock the hash and see the details.

Here are a few of the ideas, some of which are definitely being kicked around and most of which involve smart contracts, e.g.:

• car rental;

• identification tools - multi-factor authentication - e.g. checking validity of a drivers licence (hat tip to Alex Batlin)

• issuing/trading shares, bonds and other financial instruments;

• freight, transport, logistics - e.g. booking space in shipping containers, long-haul trucks and aircraft, and keeping track of the delivery items themselves;

• tracking, controlling autonomous vehicles/devices;

• switching to the best tariff minute to minute for services related to cars, homes, devices like insurance, gas, electricity, phone contracts;

• renting hotel rooms, accommodation;

• tracking and paying royalties for music, films etc;

• something I'm working on that it's not my place to disclose;

and on, and on.

In other words, distributed ledgers as a platform will have the same horizontal impact as the Internet,  mobile networks and the smartphone. The ledgers won't necessarily replace any of that, but will be an important layer, enabling all sorts of applications and devices to 'run' off the recorded transactions and related events.

Worth giving is some thought - just keep a good old fashioned pen and paper handy to jot down the flow of ideas ;-)

#LOBOs The Wolves That Stalk The High Streets

'Lobo' is Spanish for 'wolf'

Last night Dispatches updated us on the LOBO crisis that's savaging the UK's local government budgets. 

Not only have councils lost the estimated £500 million in instant profits pocketed by the banks who lured them off long term, low rate loans to 'more flexible' terms; but they're also left with higher interest bills that have resulted in more spending cuts or higher borrowing.

Everyone still involved seems to deny there's a problem, of course, but the data speaks volumes and some of the poachers-turned-gamekeeper have been willing to spill the beans. 

It's worth noting that the banks paid commissions to 'brokers' who brought in the business. Whether those commissions were or should have been disclosed is one issue; and whether the brokers also paid a cut to others is another. You'd think that Clive Betts MP (Lab), Chair of the Commons' Select Committee on Communities and Local Government, might include those items on his agenda - assuming he can get past the sad fact that allowing local governments to deal with the banking wolves in the first place was a Labour initiative.

It's also important to note that all of this only came to light through the tenacity of researchers armed with Freedom of Information requests, the results of which were handed to Dispatches. While hunting down any miscreants is an important step, requiring greater transparency on the sources and terms of local government borrowing in future might also help avoid another mauling.