The three most common smart contract misconceptions
As the developers of a popular blockchain platform, we sometimes get asked whether Ethereum-like smart contracts are on the MultiChain roadmap. The answer I always give is: no, or at least not yet.
But in the hype-filled world of blockchains, smart contracts are all the rage, so why ever not? Well, the problem is, while we now know of three strong use cases for permissioned Bitcoin-style blockchains (provenance, inter-company records and lightweight finance), we’re yet to find the equivalent for Ethereum-style smart contracts.
It’s not that people lack ideas of what they want smart contracts to do. Rather, it’s that so many of these ideas are simply impossible. You see, when smart people hear the term “smart contracts”, their imaginations tend to run wild. They conjure up dreams of autonomous intelligent software, going off into the world, taking its data along for the ride.
Unfortunately the reality of smart contracts is far more mundane than all that:
A smart contract is a piece of code which is stored on an blockchain, triggered by blockchain transactions, and which reads and writes data in that blockchain’s database.
That’s it. Really. A smart contract is just a fancy name for code which runs on a blockchain, and interacts with that blockchain’s state. And what is code? It’s Pascal, it’s Python, it’s PHP. It’s Java, it’s Fortran, it’s C++. If we’re talking databases, it’s stored procedures written in an extension of SQL. All of these languages are fundamentally equivalent, solving the same sorts of problems in the same sorts of ways. Of course, each has its strengths and weaknesses – you’d be crazy to build a website in C or compress HD video in Ruby. But in principle at least, you could if you wanted to. You’d just pay a heavy price in terms of convenience, performance, and quite probably your hair.
The problem with smart contracts isn’t just that people’s expectations are overblown. It’s that these expectations are leading many to spend time and money on ideas that cannot possibly be implemented. It seems large companies have sufficient resources to travel a lengthy path – from the moment when senior management encounters a new technology, to when that technology’s advantages and limitations are truly understood. Perhaps our own experience can help shorten this time.
Over the past nine months, we’ve been pitched many smart contract use cases, and have found ourselves responding, time and again, that they simply cannot be done. As a result, we’ve identified the three smart contract misconceptions that are most commonly held. These ideas aren’t wrong because the technology is immature, or the tools are not yet available. Rather, they misunderstand the fundamental properties of code which lives in a database and runs in a decentralized way.
Contacting external services
Often, the first use case proposed is a smart contract which changes its behavior in response to some external event. For example, an agricultural insurance policy which pays out conditionally based on the quantity of rainfall in a given month. The imagined process goes something like this: the smart contract waits until the predetermined time, retrieves the weather report from an external service, and behaves appropriately based on the data received.
This all sounds simple enough, but it’s also impossible. Why? Because a blockchain is a consensus-based system, meaning that it only works if every node reaches an identical state after processing every transaction and block. Everything that takes place on a blockchain must be completely deterministic, with no possible way for differences to creep in. The moment that two honest nodes disagree about the chain’s state, the entire system becomes worthless.
Now recall that smart contracts are executed independently by every node on a chain. Therefore, if a smart contract retrieves some information from an external source, this retrieval is performed repeatedly and separately by each node. But because this source is outside of the blockchain, there is no guarantee that every node will receive the same answer. Perhaps the source will change its response in the time between requests from different nodes, or perhaps it will become temporarily unavailable. Either way, consensus is broken and the entire blockchain dies.
So what’s the workaround? Actually, it’s rather simple. Instead of a smart contract initiating the retrieval of external data, one or more trusted parties (“oracles”) creates a transaction which embeds that data in the chain. Every node will have an identical copy of this data, so it can be safely used in a smart contract computation. In other words, an oracle pushes the data onto the blockchain rather than a smart contract pulling it in.
When it comes to smart contracts causing events in the outside world, a similar problem appears. For example, many like the idea of a smart contract which calls a bank’s API in order to transfer money. But if every node is independently executing the code in the chain, who is responsible for calling this API? If the answer is just one node, what happens if that particular node malfunctions, deliberately or not? And if the answer is every node, can we trust every node with that API’s password? And do we really want the API called hundreds of times? Even worse, if the smart contract needs to know whether the API call was successful, we’re right back to the problem of depending on external data.
As before, a simple workaround is available. Instead of the smart contract calling an external API, we use a trusted service which monitors the blockchain’s state and performs certain actions in response. For example, a bank could proactively watch a blockchain, and perform money transfers which mirror the on-chain transactions. This presents no risk to the blockchain’s consensus because the chain plays an entirely passive role.
Looking at these two workarounds, we can make some observations. First, they both require a trusted entity to manage the interactions between the blockchain and the outside world. While this is technically possible, it undermines the goal of a decentralized system. Second, the mechanisms used in these workarounds are straightforward examples of reading and writing a database. An oracle which provides external information is simply writing that information into the chain. And a service which mirrors the blockchain’s state in the real world is doing nothing more than reading from that chain. In other words, any interaction between a blockchain and the outside world is restricted to regular database operations. We’ll talk more about this fact later on.
Enforcing on-chain payments
Here’s another proposal that we tend to hear a lot: using a smart contract to automate the payment of coupons for a so-called “smart bond”. The idea is for the smart contract code to automatically initiate the payments at the appropriate times, avoiding manual processes and guaranteeing that the issuer cannot default.
Of course, in order for this to work, the funds used to make the payments must live inside the blockchain as well, otherwise a smart contract could not possibly guarantee their payment. Now recall that a blockchain is just a database, in this case a financial ledger containing the issued bond and some cash. So when we talk about coupon payments, what we’re actually talking about are database operations which take place automatically at an agreed time.
While this automation is technically feasible, it suffers from a financial difficulty. If the funds used for coupon payments are controlled by the bond’s smart contract, then those payments can indeed be guaranteed. But this also means those funds cannot be used by the bond issuer for anything else. And if those funds aren’t under the control of the smart contract, then there is no way in which payment can be guaranteed.
In other words, a smart bond is either pointless for the issuer, or pointless for the investor. And if you think about it, this is a completely obvious outcome. From an investor’s perspective, the whole point of a bond is its attractive rate of return, at the cost of some risk of default. And for the issuer, a bond’s purpose is to raise funds for a productive but somewhat risky activity, such as building a new factory. There is no way for the bond issuer to make use of the funds raised, while simultaneously guaranteeing that the investor will be repaid. It should not come as a surprise that the connection between risk and return is not a problem that blockchains can solve.
Hiding confidential data
As I’ve written about previously, the biggest challenge in deploying blockchains is the radical transparency which they provide. For example, if ten banks set up a blockchain together, and two conduct a bilateral transaction, this will be immediately visible to the other eight. While there are various strategies for mitigating this problem, none beat the simplicity and efficiency of a centralized database, in which a trusted administrator has full control over who can see what.
Some people think that smart contracts can solve this problem. They start with the fact that each smart contract contains its own miniature database, over which it has full control. All read and write operations on this database are mediated by the contract’s code, making it impossible for one contract to read another’s data directly. (This tight coupling between data and code is called encapsulation, and is the foundation of the popular object-oriented programming paradigm.)
So if one smart contract can’t access another’s data, have we solved the problem of blockchain confidentiality? Does it make sense to talk of hiding information in a smart contract? Unfortunately, the answer is no. Because even if one smart contract can’t read another’s data, that data is still stored on every single node in the chain. For each blockchain participant, it’s in the memory or disk of a system which that participant completely controls. And there’s nothing to stop them reading the information from their own system, if and when they choose to do so.
Hiding data in a smart contract is about as secure as hiding it in the HTML code of a web page. Sure, regular web users won’t see it, because it’s not displayed in their browser window. But all it takes is for a web browser to add a ‘View Source’ function (as they all have), and the hidden information becomes universally visible. Similarly, for data hidden in smart contracts, all it takes is for someone to modify their blockchain software to display the contract’s full state, and all semblance of secrecy is lost. A half-decent programmer could do that in an hour or so.
What smart contracts are for
With so many things that smart contracts cannot do, one might ask what they’re actually for. But in order to answer this question, we need to go back to the fundamentals of blockchains themselves. To recap, a blockchain enables a database to be directly and safely shared by entities who do not trust each other, without requiring a central administrator. Blockchains enable data disintermediation, and this can lead to significant savings in complexity and cost.
Any database is modified via “transactions”, which contain a set of changes to that database which must succeed or fail as a whole. For example, in a financial ledger, a payment from Alice to Bob is represented by a transaction that (a) checks if Alice has sufficient funds, (b) deducts a quantity from Alice’s account, and (c) adds the same quantity to Bob’s.
In a regular centralized database, these transactions are created by a single trusted authority. By contrast, in a blockchain-driven shared database, transactions can be created by any of that blockchain’s users. And since these users do not fully trust each other, the database has to contain rules which restrict the transactions performed. For example, in a peer-to-peer financial ledger, each transaction must preserve the total quantity of funds, otherwise participants could freely give themselves as much money as they liked.
One can imagine various ways of expressing these rules, but for now there are two dominant paradigms, inspired by Bitcoin and Ethereum respectively. The Bitcoin method, which we might call “transaction constraints”, evaluates each transaction in terms of: (a) the database entries deleted by that transaction, and (b) the entries created. In a financial ledger, the rule states that the total quantity of funds in the deleted entries has to match the total in those created. (We consider the modification of an existing entry to be equivalent to deleting that entry and creating a new one in its place.)
The second paradigm, which comes from Ethereum, is smart contracts. This states that all modifications to a contract’s data must be performed by its code. (In the context of traditional databases, we can think of this as an enforced stored procedure.) To modify a contract’s data, blockchain users send requests to its code, which determines whether and how to fulfill those requests. As in this example, the smart contract for a financial ledger performs the same three tasks as the administrator of a centralized database: checking for sufficient funds, deducting from one account, and adding to another.
Both of these paradigms are effective, and each has its advantages and disadvantages, as I’ve discussed in depth previously. To summarize, Bitcoin-style transaction constraints provide superior concurrency and performance, while Ethereum-style smart contracts offer greater flexibility. So to return to the question of what smart contracts are for:
Smart contracts are for blockchain use cases which can’t be implemented with transaction constraints.
Given this criterion for using smart contracts, I’m yet to see a strong use case for permissioned blockchains which qualifies. All the compelling blockchain applications I know can be implemented with Bitcoin-style transactions, which can handle permissioning and general data storage, as well as asset creation, transfer, escrow, exchange and destruction. Nonetheless, new use cases are still appearing, and I wouldn’t be surprised if some do require the power of smart contracts. Or, at the very least, an extension of the Bitcoin paradigm.
Whatever the answer turns out to be, the key to remember is that smart contracts are simply one method for restricting the transactions performed in a database. This is undoubtedly a useful thing, and is essential to making that database safe for sharing. But smart contracts cannot do anything else, and they certainly cannot escape the boundaries of the database in which they reside.
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President Maduro: Venezuela Seeks Opportunities To Use Cryptocurrency For Global Trade
- Venezuela’s cryptocurrency story continues as the country’s President Nicolas Maduro has presented new use cases.
- A recent report informed that the South American nation is studying the possibility of using digital assets in trades alongside the national Petro.
- President Maduro has presented new anti-sanctions law in the Constituent National Assembly. In a recent speech, he asserted:
“The anti-sanctions law is the first response to give new strength to the use of petro and other cryptocurrencies, national and global, in domestic and foreign trade, so that all cryptocurrencies of the world, state and private, could be used. This is an important project that is under development.”
- The news comes after Maduro suggested last year that his country could adopt cryptocurrency payments.
- Additionally, Venezuela signed a new tax agreement this summer that enabled the nation to start collecting taxes and fees in the Petro.
- A study reported by CryptoPotato revealed that digital assets already play an essential role in the country’s struggling economy. Venezuela’s intensifying financial crisis has catalyzed significant interest in cryptocurrencies as people seek opportunities to escape the devaluating national currency.
- The Bitcoin peer-to-peer volume exemplifies the growing interest in the primary cryptocurrency within the country. As per data from coin.dance, the BTC P2P volume on LocalBitcoins has been continuously surging in the past several months.
Leader That Allowed Scams: TRON’s Justin Sun Responds to Claims by Ex-Employees
Yesterday The Verge published an elaborate article portraying a picture of Justin Sun’s leadership at BitTorrent post the peer-to-peer file-sharing site’s acquisition by the TRON foundation.
Sun later responded to the ‘false-claims’ made by TRON/BitTorrent’s ex-employees in the article with ‘An Open Letter to Anyone Who Cares to Read’ on Medium.
Claim: Megalomaniac Leader; Response: True Libertarian
In the supposedly expose piece, author
Refuting the above portrayal of his leadership, Sun, in his response, stated that he has devoted his entire life ‘to being a responsible, global citizen’. Adding to this, Justin said that is a true champion of libertarian principles for a significant portion of his life.
I have devoted myself to being a responsible, global citizen throughout my entire life, spending significant portions of my personal and professional life to activities promoting universal values of respect, liberty, equality, and kindness.
The TRON and BitTorrent chief impressed further on his ‘global’ approach to things. He explained that the TRON Foundation harbors a ‘global team of talented contributors and developers’. And that he takes ‘pride in working’ with this global community to make TRON ‘one of the greatest decentralized blockchain protocols’.
Claim: Freedom Suppressor; Response: Upholder Of Human Rights, Individual Values
Dunaway reportedly engaged in conversations with folks who are/were associated with the TRON brand and the work culture. From what he gathered, Justin enforced a draconian company culture, with employees officially following the ‘9-9-6’ norm.
According to the article, TRON’s HR had Slack replaced with its Chinese counterpart DingTalk. The communication platform had an in-built surveillance mechanism that would use ‘Apple Health to count people’s steps’. Also, DingTalk used to ping employees literally all the time.
To this, Sun responded by saying that he has left no stone turned in, establishing a work culture that respects.
diversity and individuality through a culture that cherishes fundamental human values freedom of speech, user privacy, intellectual property protection, kindness, a diversified working environment, and compliance with legal standards.
Justin went on to comment that TRON and BitTorrent operate with a ‘globally collaborative team’. One that upholds and respects the ethos of cross-culture teams. Sun claimed that the folks at TRON folks have ‘worked hard’ to create a collaborative work culture. One that values freedom of speech and individual privacy.
Claim: Suppressed Criticism, Allowed Scams; Response: No Control Over Protocol Functioning
The Verge piece mentioned that ‘decentralization’ was just a facade for what was happening behind the curtains. Justin Sun and his core officials exercised strict control over content moving about and within the TRON network.
This involved allegedly paying a Redditor to ‘erase negative posts’. Which later drew the ire of the community.
Free speech is part of the ideology of decentralization, where ideas flow without gatekeepers. Tron started deleting any post it wanted.
The article also claimed that TRON’s administration team was silent and allowed the perpetration of scams on the network. While this happened, scammers and the scammed continue to grow in numbers while the management did nothing to interfere.
Justin, in his Medium post, said that he and the entire TRON administration team function sans control. Even though the team at TRON works to upgrade the platform, they do not exercise any censorship/regulation.
…we have no control or discretion over what applications use the protocol, what data is transmitted, or how its community members use it.
Sun went to add that he and his team are proud of TRON and BitTorrent’s achievement over the years. He went to quote that both have collectively ‘served 2 billion users around the world. These include ‘numerous enterprises, universities, and governments’.
Lastly, the TRON and BitTorrent boss struck down all claims made by ex-employees Lucasz Juraszek, Richard Hall, and Cong Li. Justin declared that the TRON foundation’s legal counsel has submitted all the requisite proofs and evidence pieces to the court. “We believe the decision will speak for itself”, he said.
BTT and TRX’s price didn’t seem to undergo any correction following the release of the bitterly scathing Verge piece. On the contrary, BTT is actually up 2.3% in the last 24 hours.
Featured image courtesy of QZ.com
Ethereum Price Analysis: Will ETH Surpass 2019 Highs Towards $400?
ETH/USD – Bulls Struggling To Pass 2019 Highs
Key Support Levels: $350, $336, $325.
Key Resistance Levels: $364, $378, $390.
Ethereum pushed higher last week to reach the 2019 highs at around $364 over the weekend. Unfortunately, it has not been able to overcome this resistance in the past four days of trading as bearish divergence popped up on the short term charts – highlighted in our last analysis.
For now, Ethereum is finding strong support between $350 and $355; however, it is looking increasingly likely to break this support soon as the short-term bearish divergence continues to play out.
ETH-USD Short Term Price Prediction
If ETH does penetrate back beneath $350, the first level of strong support lies at $336 (100-days EMA). Beneath this, additional support lies at $324 (.618 Fib), $320, $310, and $300.
On the other side, the first level of resistance lies at $364 (2019 highs). Above this, resistance is expected at $378 (bearish .382 Fib), $390, and $400.
The Daily RSI did dip beneath the mid-line to suggest that the sellers are battling to gain control of the market momentum.
ETH/BTC – Bears Continue To Face Resistance at Falling Trend Line
Key Support Levels: 0.033BTC, 0.032 BTC, 0.0315 BTC.
Key Resistance Levels: 0.0337 BTC, 0.0347 BTC, 0.0352 BTC.
Against Bitcoin, Ethereum continues to face the resistance at a falling trend line that has dictated price action during September. Each time ETH attempted to break above this falling trend line, the coin was rejected and headed lower.
On Monday, ETH attempted to push beyond the March 2019 support at 0.0337 BTC but could not pass it. As a result, ETH moved sideways this week and has returned to the falling trend line. Here, it can be expected that ETH should be heading lower – especially with the daily RSI flattening out in the bearish territory.
ETH-BTC Short Term Price Prediction
Looking ahead, if the trend line rejects the sellers, the first two levels of support lie at 0.033 BTC and 0.032 BTC. Beneath this, support lies at 0.0315 BTC (100-days EMA & downside 1.414 Fib Extension), 0.0311 BTC (.618 Fib Retracement), and 0.0305 BTC.
On the other side, if the bulls can penetrate the falling trend line, the first level of resistance lies at 0.0337 BTC (March 2019 Support). Above this, resistance lies at 0.0347 BTC, 0.0352 BTC, and 0.0361 BTC (March 2019 High).
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