Reports came out that certain industries will try to experiment with Smart Contracts through Bitcoin this year. Smart contracts have gained popularity in 2016. Many banks, financial companies and investors continue to explore possible benefits of protocols based on Smart Contracts like Ethereum in developing original and decentralized apps.
Yet, the Ethereum Network ($930 million) has experienced issues regarding practical use and effective utilization. The reasons are internal viruses, security problems and transaction holdups. Security is prioritized instead of flexibility. What is the drawback in this case? Security and technical concerns surface if cryptographic networks prefer usefulness and compliance more than security. The fact is the adaptable and functional network is capable of accommodating big projects because of substantial consumer bases. Yet, the network is subject to exploitation if security measures are not implemented.
Close Look at Smart Contracts
The Smart Contract is often publicized as a major piece of next-generation Blockchain technologies as well as primary capability for useful business application. There are different descriptions for this approach. It is an autonomous machine, contract between parties, kept on Blockchain, and computation that happens on Blockchain.
The terminology may be adopted to identify a particular technology. This is a smart contract code that refers to codes that can be stored, validated and implemented on Blockchain platforms. It is also an application of said technology as complement or alternate for legal contracts. With regards to the first meaning, answers will depend on capacity of the language to explain the contract together with Blockchain’s technical characteristics.
The Blockchain is able to process codes. The original Blockchains were designed to perform simple operations. These were currency-like token transactions. New techniques have been formulated allowing the Blockchain to carry out more complicated functions classified in programming languages.
The program is unique for several reasons. It is recorded on Blockchain giving it more stability and resistance against suppression. The program is also capable of regulating Blockchain assets, keep and transfer different amounts of the digital currency. Finally, The Blockchain takes care of execution as written and nobody intervenes with the operation. The term, “contract” helps because the code sounds as controlling something valuable. The smart contract code is not isolated. It is a small part of a bigger application.
The Decentralized Autonomous Organization (DAO), Decentralized Application (DAPP) and other apps based on Blockchain are built with the use of this Code. Likewise, Augur, Slock.it and Boardroom are all made from smart contract codes. AUGUR is defined as decentralized prediction market anchored on Ethereum. It permits users to project events and get rewards for making accurate predictions. Slock.it technology connects Blockchain to the physical world which provides connected objects with an identity as well as capability to accept payments and enter into complex agreements. Boardroom is next-generation governance architecture under Blockchain.
Researchers and industry experts are exploring multiple solutions and technologies that use Bitcoin as groundwork for smart contract platforms. One such remarkable technology is known as the Lightning Network. It was patterned after a project of Bitcoin developer Mike Hearn and Matt Corallo, co-founder of BlockStream. Mike Hearn made the claim that BlockStream, composed of a group of Bitcoin Core developers, is the source of rejection behind the block sign increase of Bitcoin. Matt Corallo created the Micropayment Channel allows Bitcoin users to engage in several transactions without committing all of these to Bitcoin. Only two transactions are added into Blockchain in an ordinary payment outlet. However, multiple payments are allowed between participants.
Lightning Network Concept
The Lightning Network Concept uses the Hashed Timelock Contract or HTLC for multiple party contracts. This enables receivers to determine the transaction or transaction amount before receiving the actual payment. The system is almost like standard contracts. The first party agrees to pay the second party within a specific period. The HTLC permits Bitcoin to accomplish agreements which are identical in concept.
Under this scenario, Lightning Network Concept may be used as smart contract platform because users can send or receive specific amount of money ahead of signing the transaction with cryptographic evidence. A BlockStream employee believes this kind of network is the most a large-scale project produced by the system.
More than anything else, it facilitates a multifaceted smart contract performed using many transactions without being incompatible with verifications of transactions. Only the last transaction is transmitted to the Blockchain. If there are 20 transactions, the last one will include the previous ones and combine them into a single deal that miners can pick up.
One more novel concept being developed is the adoption of merged sidechains that lead to settlement of smart contracts. The Bitcoin sidechain is not connected to the primary Bitcoin Blockchain. Yet, it is interoperable (capable of using and exchanging information) with a two-way peg. This will enable transfer of assets between Blockchain and Sidechain without taking up a lot of storage space.
The Sidechain makes it easier for innovators to develop new apps without endangering the core code of Bitcoin and placing a huge amount of the crypto-currency at risk. Said platform will permit alternative networks to meet with the main network for settling transactions once implemented. There is a proposal for a substitute trust model so users can utilize the technology without relying on stringent preconditions of Bitcoin consent.
What is the next possible development? Ground-breaking and workable smart contracts will certainly be developed and tested within this year. Many industry stakeholders see 2017 as the best time for adherents to the technology (business entities) to try out Bitcoin for smart contracts. The results may either be positive or negative but these open opportunities for Bitcoin to inch closer towards the mainstream sector.