Smart contracts. Part 1. When paper knows what you told it and does it.

The article was already published earlier on Geektimes by our employee, but was blocked due to the requirement to maintain a corporate blog. We publish this article for the integrity of the entire series of articles on smart contracts.

A bit of history

At the dawn of its development, the Internet was a rather boring sight - the whole world was no more than a couple dozen noteworthy sites with interesting content. The Blockchain technology, which is often called the new Internet, takes us back to that time: there are only a few full-fledged software solutions for the entire network that are still very far from perfect.

But it was then, in 1996, when the first turn of the global development of the Internet came, that American programmer and cryptographer Nick Sabo (for example, Nick Sabo’s picture in childhood) first proposed the concept of “smart contracts”, which today is unthinkable without reference to the Blockchain ecosystem . Szabo described the smart contract as a computer protocol that, based on mathematical algorithms, independently conducts transactions with full control over their implementation. This definition of smart contracts is still relevant.

Here is how Sabo himself comments on this now: “It's amazing to see how my vision of smart contracts, which I described more than twenty years ago, flourishes in various creative directions. Blockchain technology appeared very timely, becoming an ideal ecosystem for the development of smart contracts, which are already becoming commonplace in business transactions and beyond. I am pleased to belong to the community involved in the development of open source technologies that ensure the safety and confidentiality of all operations, and to work towards the achievement of the common good. ”

A smart contract will do everything himself

A prototype of smart contracts are ordinary paper contracts that any modern organization uses in its activities. Once drafted, such contracts are usually manually signed, sent on long-term travels around the world to collect the necessary signatures, and then people personally fulfill all their provisions.

The most obvious development of these processes could be technologies that, firstly, would allow to overcome all the spaces in a matter of seconds, and secondly, would automate the basic terms of the agreement. In this case, the contract would be executed automatically, without human participation. As the development of technology shows, Blockchain and smart contracts are suitable solutions for this.

What is a smart contract? If simplified, then a smart contract is all the same agreement between people and / or organizations, but only described in the form of program code that is executed automatically and receives all the necessary data using the so-called “oracles” - programs that provide a bunch of real and the digital world together.

Smart contracts are usually recorded in Blockchain (although they may exist in a different environment). In the Blockchain-based environment, the entire program logic of a smart contract is recorded and located in a block, which is a software container that combines all messages related to a particular smart contract. Messages can act as inputs and outputs of the smart contract program code and lead to any actions in the real or digital world outside the Blockchain block.

In this article, we will not delve into the technical details of the creation and operation of smart contracts. It is only important to note that a smart contract requires several mandatory elements:

First, it is digital identification and the availability of digital signatures (public and private key) of two or more parties to the contract.

Secondly, in order to conclude smart contracts, a private decentralized environment is needed in which smart contracts will be recorded, and which supports the inputs and outputs for oracles;

Thirdly, the subject of the contract itself and the availability of the necessary instruments for its execution. For example, if any calculations are assumed - then these are cryptocurrency current accounts, if you need a connection with the real world - then oracles.

Fourthly, it is the conditions of its execution that are specifically described, which the participants confirm at the same time as signing the entire smart contract.

What are smart contracts

Depending on the degree of automation, smart contracts may be of different models:

It is quite natural that now smart contracts are being run-in and there is no functionality and sufficient confidence in the system for programming truly complex smart contracts. Therefore, most of the currently executed smart contracts belong to the third type of contracts, which automate only certain aspects of agreements, in particular, the exchange of digital assets (for example, the exchange of funds for property rights).

Nevertheless, there is every reason to believe that in the short term, with the development of blockchain infrastructure and the emergence of credible oracles, smart contracts will cease to be only an addition to the paper version of the document and will become the main guarantor of the execution of any agreement. The paper version will lose all its significance and will be used only for the convenience of studying documents.

Looking at the speed with which giants such as IBM, Intel, Cisco, Microsoft and Linux are developing frameworks for creating closed blockchain ecosystems that allow storing and executing smart contracts without violating corporate principles of data privacy and commercial secrecy - it's all just around the corner.

Please note: public Blockchain ecosystems that allow anyone who wants to access transactions under smart contracts are completely unacceptable for business. After all, usually organizations are not too willing to disclose their business connections, and even more so they are not eager to open access to all their transactions.

Lee Brain, CTO of the investment office at Barclays, also confirmed this provision, stating that smart contracts should be protected from unauthorized access, and in this sense, the publicity of some blockchain solutions can be a problem place in the use of smart contracts by businesses and organizations.

Examples of using

The potential uses of smart contracts are truly vast. You can use smart contracts for all possible situations, ranging from regular labor smart contracts to trading financial derivatives and insurance premiums.

The most famous example of using technology is decentralized autonomous organizations, or DAO (The DAO,, Fermat). Work in such organizations is completely based on smart contracts and is managed by collective decisions of its participants, owners of tokens. In this case, absolutely all working moments, from daily tasks to the schedule of payment of salaries, are written in the program code. This makes decentralized organizations much more efficient than traditional ones: if a participant in such an organization does not systematically fulfill his duties or, for example, often is rude to other members of the community, the owners of the tokens can simply withdraw their support for this participant, and then he will automatically lose the contract and will be excluded from the DAO.

However, smart contracts do not have to be the basis for the existence of a company - they can also be a convenient addition, a tool for solving certain business problems. For example, it may be the circulation of documents, accounting, auditing, and even the delivery of goods.

For example, the British bank Barclays, which last September conducted the world's first blockchain bargain, already uses smart contracts to register the transfer of ownership and transfer payments to other financial institutions, and Bitcoin Core developer Jeff Garzik once offered the following application of smart contracts: “UPS can execute contracts that say:“ If we receive payment for the delivery of the goods, then its manufacturer, which in the supply chain is on many The name above will immediately begin to create such a new product, since this one has already been delivered to its destination. ”

What we do with smart contracts in Jincor

At the moment, all participants have obvious advantages of applying smart contracts in the global market. Reducing transaction costs, the ability for any small company to enter the global market and present its presence outside its local market with the help of smart contracts, absolute trust between counterparties - all this forces organizations to more closely examine the possibilities of implementing smart contracts in their operations, as well as this has already happened with cryptocurrencies (in the previous article we told that more than 100,000 companies around the world, including Microsoft, Amazon, Tesla, Dell and Steam, are already accepting calculations in crypts currency).

Nevertheless, one of the main obstacles for the mass distribution of smart contracts in the business environment remains a high input threshold. Programming smart contracts is very expensive and requires the presence on the staff of the company so-called codelawyers - specialists with a very rare fusion of competences.

Jincor's mission is to enable organizations to create smart contracts without special technical and legal knowledge. Based on its own blockchain, Jincor is developing a smart contract designer, with which any Internet user can create their own smart contract and place it in the blockchain, after which the automatic execution of the conditions specified in it will begin. At the same time, the process of creating a contract in Jincor is no more difficult than making purchases in an online store.

In addition, Jincor provides all the necessary environment for the full use of smart contracts, including the blockchain-ecosystem, digital identification mechanisms, digital signatures, and a decentralized arbitration system (the article on arbitration will be released tomorrow), which allows to resolve emerging disputes in the most rational and impartial way. . To conclude smart contracts on the platform, organizations will need to have available, or create a request to Jincor to purchase JCR tokens to pay for Jincor services.

Jincor ico

Starting from August 21, JCR tokens can be purchased as part of the pre-ICO 2 times cheaper than the starting price of the token (ICO will start on November 1). Buying JCR tokens on pre-ICO will help ensure a constant progressive profitability, since their value in the future will depend on the popularity of the platform in the business environment.

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What we will discuss in the next article

In the next article (Smart Contracts. Part 2. From HYP to Reality), we will explain why smart contracts cannot live without decentralization and blockchain, what fundamental advantages they have in themselves, what obstacles exist for the implementation of smart contracts in business processes and how we overcome these obstacles in jincor.


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