Blockgeeks

Wise Contracts: The Blockchain Technology That Will Substitute Lawyers

An in-depth guide by BlockGeeks

A Beginner’s Guide to Wise Contracts

One of the best things about the blockchain is that, because it is a decentralized system that exists inbetween all permitted parties, there’s no need to pay intermediaries (Middle fellows) and it saves you time and conflict. Blockchains have their problems, but they are rated, undeniably, swifter, cheaper, and more secure than traditional systems, which is why banks and governments are turning to them.

In 1994, Nick Szabo , a legal scholar, and cryptographer, realized that the decentralized ledger could be used for brainy contracts, otherwise called self-executing contracts, blockchain contracts, or digital contracts. In this format, contracts could be converted to computer code, stored and replicated on the system and supervised by the network of computers that run the blockchain. This would also result in ledger feedback such as transferring money and receiving the product or service.

What are Brainy Contracts?

Clever contracts help you exchange money, property, shares, or anything of value in a see-through, conflict-free way while avoiding the services of a middleman.

The best way to describe clever contracts is to compare the technology to a vending machine. Ordinarily, you would go to a lawyer or a notary, pay them, and wait while you get the document. With clever contracts, you simply drop a bitcoin into the vending machine (i.e. ledger), and your escrow, driver’s license, or whatever drops into your account. More so, clever contracts not only define the rules and penalties around an agreement in the same way that a traditional contract does, but also automatically enforce those obligations.

As Vitalik Buterin, the 22-year-old programmer of Ethereum, explained it at a latest DC Blockchain Summit, in a clever contract treatment, an asset or currency is transferred into a program “and the program runs this code and at some point it automatically validates a condition and it automatically determines whether the asset should go to one person or back to the other person, or whether it should be instantly refunded to the person who sent it or some combination thereof.”In the meantime, the decentralized ledger also stores and replicates the document which gives it a certain security and immutability.

Suppose you rent an apartment from me. You can do this through the blockchain by paying in cryptocurrency. You get a receipt which is held in our virtual contract; I give you the digital entry key which comes to you by a specified date. If the key doesn’t come on time, the blockchain releases a refund. If I send the key before the rental date, the function holds it releasing both the fee and key to you and me respectively when the date arrives. The system works on the If-Then premise and is witnessed by hundreds of people, so you can expect a faultless delivery. If I give you the key, I’m sure to be paid. If you send a certain amount in bitcoins, you receive the key. The document is automatically canceled after the time, and the code cannot be interfered by either of us without the other knowing, since all participants are at the same time alerted.

You can use brainy contracts for all sort of situations that range from financial derivatives to insurance premiums, breach contracts, property law, credit enforcement, financial services, legal processes and crowd funding agreements.

A Wise Contract Example

Here is the code for a basic clever contract that was written on the Ethereum blockchain. Contracts can be encoded on any blockchain, but Ethereum is mostly used since it gives unlimited processing capability.

The contract stipulates that the creator of the contract be given Ten,000 BTCS (i.e. bitcoins); it permits anyone with enough balance to distribute these BTCs to others.

Here’s How You Can Use Wise Contracts

Jerry Cuomo, vice president for blockchain technologies at IBM, believes clever contracts can be used all across the chain from financial services to healthcare to insurance. Here are some examples:

Insiders vouch that it is enormously hard for our voting system to be rigged, but nonetheless, clever contracts would allay all concerns by providing an infinitely more secure system. Ledger-protected votes would need to be decoded and require excessive computing power to access. No one has that much computing power, so it would need God to hack the system! Secondly, wise contracts could hike low voter turnout. Much of the inertia comes from a fumbling system that includes lining up, displaying your identity, and completing forms. With wise contracts, volunteers can transfer voting online and millennials will turn out en masse to vote for their Potus.

The blockchain not only provides a single ledger as a source of trust, but also trims possible snarls in communication and workflow because of its accuracy, transparency, and automated system. Ordinarily, business operations have to bear a back-and forward, while waiting for approvals and for internal or outward issues to sort themselves out. A blockchain ledger streamlines this. It also cuts out discrepancies that typically occur with independent processing and that may lead to costly lawsuits and settlement delays.

In 2015, the Depository Trust & Clearing Corp. (DTCC) used a blockchain ledger to process more than $1.Five quadrillion worth of securities, signifying three hundred forty five million transactions.

Clever contracts work on the If-Then premise so, to put in Jeff Garzik’s words ,

“UPS can execute contracts that say, ‘If I receive cash on delivery at this location in a developing, emerging market, then this other [product], many, many links up the supply chain, will trigger a supplier creating a fresh item since the existing item was just delivered in that developing market.’” All too often, supply chains are hampered by a paper-based systems, where forms have to pass through numerous channels for approval, which increases exposure to loss and fraud. The blockchain nullifies this by providing a secure, accessible digital version to all parties on the chain and automates tasks and payment.

Barclays Corporate Bank uses wise contracts to log switch of ownership and automatically transfer payments to other financial institutions upon arrival

There’s no doubt that we’re progressing from slothful pre-human vertebrates to super-smart robots. Think of a future where everything is automated. Google’s getting there with clever phones, wise glasses, and even wise cars. That’s where brainy contracts helps. One example is the self-autonomous or self-parking vehicles, where wise contracts could put into play a sort of ‘oracle’ that could detect who was at fault in a crash; the sensor or the driver, as well as innumerable other variables. Using brainy contracts, an automobile insurance company could charge rates differently based on where, and under which, conditions customers are operating their vehicles.

You can get more money through clever contracts. Ordinarily, if you desired to rent your apartment to someone, you’d need to pay a middleman such as Craigslist or a newspaper to advertise and then again you’d need to pay someone to confirm that the person paid rent and followed through. The ledger cuts your costs. All you do is pay via bitcoin and encode your contract on the ledger. Everyone sees, and you accomplish automatic fulfillment. Brokers, real estate agents, hard money lenders, and anyone associated with the property game can profit.

Private health records could be encoded and stored on the blockchain with a private key which would grant access only to specific individuals. The same strategy could be used to ensure that research is conducted via HIPAA laws (in a secure and confidential way). Receipts of surgeries could be stored on a blockchain and automatically sent to insurance providers as proof-of-delivery. The ledger, too, could be used for general health care management, such as supervising drugs, regulation compliance, testing results, and managing healthcare supplies.

Clever Contracts are Awesome!

Here’s what wise contracts give you:

Autonomy – You’re the one making the agreement; there’s no need to rely on a broker, lawyer or other intermediaries to confirm. Incidentally, this also knocks out the danger of manipulation by a third party, since execution is managed automatically by the network, rather than by one or more, possibly biased, individuals who may err.

Trust – Your documents are encrypted on a collective ledger. There’s no way that someone can say they lost it.

Backup – Imagine if your bank lost your savings account. On the blockchain, each and every one of your friends has your back. Your documents are duplicated many times over.

Safety – Cryptography, the encryption of websites, keeps your documents safe. There is no hacking. In fact, it would take an abnormally brainy hacker to crack the code and infiltrate.

Speed – You’d ordinarily have to spend chunks of time and paperwork to by hand process documents. Brainy contracts use software code to automate tasks, thereby pruning hours off a range of business processes.

Savings – Clever contracts save you money since they knock out the presence of an intermediary. You would, for example, have to pay a notary to witness your transaction.

Accuracy – Automated contracts are not only quicker and cheaper but also avoid the errors that come from by hand packing out heaps of forms.

Here’s how Jeff Garzik, possessor of blockchain services Bloq, described clever contracts:

“Smart contracts … assure a very, very specific set of outcomes. There’s never any confusion and there’s never any need for litigation.”

“Smart Contracts are where the rubber meets the road for businesses and blockchain technology. While a few very specialized distributed financial services use cases for blockchain have appeared—for example, payment ledger services for the Yangon Stock Exchange in Myanmar. Its services on top of blockchain that are indeed interesting. In the Yangon Exchange, it solves the problem of distributed settlement in a trading system that only synchronizes trades twice a day. But the autonomous execution capacities of wise contracts extends the transactional security assurance of blockchain into situations where sophisticated, evolving context transitions are required. And it’s this possibility that has Amazon, Microsoft Azure and IBM Bluemix rolling out Blockchain-as-a-Service (Baas) from the cloud.” – Patrick Hubbard, Head Geek, SolarWinds

Now for Problems

Brainy contracts are far from flawless. What if bugs get in the code? Or how should governments regulate such contracts? Or, how would governments tax these brainy contract transactions? As a case in point, reminisce my rental situation?

What happens if I send the wrong code, or, as lawyer Bill Marino points out , I send the right code, but my apartment is condemned (i.e., taken for public use without my consent) before the rental date arrives? If this were the traditional contract, I could rescind it in court, but the blockchain is a different situation. The contract performs, no matter what.

The list of challenges goes on and on. Experts are attempting to unravel them, but these critical issues do dissuade potential adopters from signing on.

And here’s To the Future of Brainy Contracts…

Part of the future of clever contracts lies in entangling these issues. In Cornell Tech, for example, lawyers, who insist that wise contracts will inject our everyday life, have dedicated themselves to researching these concerns.

Actually, when it comes to wise contracts, we’re stepping into a sci-fi screen. The IT resource center, Search Compliance suggests that brainy contracts may influence switches in certain industries, such as law. In that case, lawyers will transfer from writing traditional contracts to producing standardized brainy contract templates, similar to the standardized traditional contracts that you’ll find on LegalZoom . Other industries such as merchant acquirers, credit companies, and accountants may also employ clever contracts for tasks, such as real time auditing and risk assessments. Actually, the website Blockchain Technologies sees wise contracts merging into a hybrid of paper and digital content where contracts are verified via blockchain and substantiated by physical copy.

Blockchains Where You Can Process Brainy Contracts

Bitcoin : Bitcoin is fine for processing Bitcoin transactions, but has limited capability for processing documents.

Side Chains : This is another name for blockchains that run adjacent to Bitcoin and suggest more scope for processing contracts.

NXT : NXT is a public blockchain platform that contains a limited selection of templates for brainy contracts. You have to use what is given; you’re incapable to code your own.

Ethereum : Ethereum is a public blockchain platform and the most advanced for coding and processing brainy contracts. You can code whatever you wish, but would have to pay for computing power with “ETH” tokens.

As to the potential of brainy contracts itself, there’s no end to the range of industries it can influence, from healthcare to automobile to real estate and law. The list goes on and on. Says, Ethereum CTO, Gavin Wood

“The potential for [wise contracts] to alter aspects of society is of significant magnitude. This is something that would provide a technical basis for all sorts of social switches, and I find that titillating.

What Are Clever Contracts? A Beginner’s Guide to Wise Contracts

Blockgeeks

Clever Contracts: The Blockchain Technology That Will Substitute Lawyers

An in-depth guide by BlockGeeks

A Beginner’s Guide to Clever Contracts

One of the best things about the blockchain is that, because it is a decentralized system that exists inbetween all permitted parties, there’s no need to pay intermediaries (Middle dudes) and it saves you time and conflict. Blockchains have their problems, but they are rated, undeniably, quicker, cheaper, and more secure than traditional systems, which is why banks and governments are turning to them.

In 1994, Nick Szabo , a legal scholar, and cryptographer, realized that the decentralized ledger could be used for brainy contracts, otherwise called self-executing contracts, blockchain contracts, or digital contracts. In this format, contracts could be converted to computer code, stored and replicated on the system and supervised by the network of computers that run the blockchain. This would also result in ledger feedback such as transferring money and receiving the product or service.

What are Wise Contracts?

Clever contracts help you exchange money, property, shares, or anything of value in a semitransparent, conflict-free way while avoiding the services of a middleman.

The best way to describe clever contracts is to compare the technology to a vending machine. Ordinarily, you would go to a lawyer or a notary, pay them, and wait while you get the document. With wise contracts, you simply drop a bitcoin into the vending machine (i.e. ledger), and your escrow, driver’s license, or whatever drops into your account. More so, wise contracts not only define the rules and penalties around an agreement in the same way that a traditional contract does, but also automatically enforce those obligations.

As Vitalik Buterin, the 22-year-old programmer of Ethereum, explained it at a latest DC Blockchain Summit, in a clever contract treatment, an asset or currency is transferred into a program “and the program runs this code and at some point it automatically validates a condition and it automatically determines whether the asset should go to one person or back to the other person, or whether it should be instantly refunded to the person who sent it or some combination thereof.”In the meantime, the decentralized ledger also stores and replicates the document which gives it a certain security and immutability.

Suppose you rent an apartment from me. You can do this through the blockchain by paying in cryptocurrency. You get a receipt which is held in our virtual contract; I give you the digital entry key which comes to you by a specified date. If the key doesn’t come on time, the blockchain releases a refund. If I send the key before the rental date, the function holds it releasing both the fee and key to you and me respectively when the date arrives. The system works on the If-Then premise and is witnessed by hundreds of people, so you can expect a faultless delivery. If I give you the key, I’m sure to be paid. If you send a certain amount in bitcoins, you receive the key. The document is automatically canceled after the time, and the code cannot be interfered by either of us without the other knowing, since all participants are at the same time alerted.

You can use brainy contracts for all sort of situations that range from financial derivatives to insurance premiums, breach contracts, property law, credit enforcement, financial services, legal processes and crowd funding agreements.

A Brainy Contract Example

Here is the code for a basic brainy contract that was written on the Ethereum blockchain. Contracts can be encoded on any blockchain, but Ethereum is mostly used since it gives unlimited processing capability.

The contract stipulates that the creator of the contract be given Ten,000 BTCS (i.e. bitcoins); it permits anyone with enough balance to distribute these BTCs to others.

Here’s How You Can Use Brainy Contracts

Jerry Cuomo, vice president for blockchain technologies at IBM, believes brainy contracts can be used all across the chain from financial services to healthcare to insurance. Here are some examples:

Insiders vouch that it is utterly hard for our voting system to be rigged, but nonetheless, clever contracts would allay all concerns by providing an infinitely more secure system. Ledger-protected votes would need to be decoded and require excessive computing power to access. No one has that much computing power, so it would need God to hack the system! Secondly, brainy contracts could hike low voter turnout. Much of the inertia comes from a fumbling system that includes lining up, demonstrating your identity, and completing forms. With wise contracts, volunteers can transfer voting online and millennials will turn out en masse to vote for their Potus.

The blockchain not only provides a single ledger as a source of trust, but also trims possible snarls in communication and workflow because of its accuracy, transparency, and automated system. Ordinarily, business operations have to bear a back-and forward, while waiting for approvals and for internal or outward issues to sort themselves out. A blockchain ledger streamlines this. It also cuts out discrepancies that typically occur with independent processing and that may lead to costly lawsuits and settlement delays.

In 2015, the Depository Trust & Clearing Corp. (DTCC) used a blockchain ledger to process more than $1.Five quadrillion worth of securities, signifying three hundred forty five million transactions.

Wise contracts work on the If-Then premise so, to put in Jeff Garzik’s words ,

“UPS can execute contracts that say, ‘If I receive cash on delivery at this location in a developing, emerging market, then this other [product], many, many links up the supply chain, will trigger a supplier creating a fresh item since the existing item was just delivered in that developing market.’” All too often, supply chains are hampered by a paper-based systems, where forms have to pass through numerous channels for approval, which increases exposure to loss and fraud. The blockchain nullifies this by providing a secure, accessible digital version to all parties on the chain and automates tasks and payment.

Barclays Corporate Bank uses brainy contracts to log switch of ownership and automatically transfer payments to other financial institutions upon arrival

There’s no doubt that we’re progressing from slothful pre-human vertebrates to super-smart robots. Think of a future where everything is automated. Google’s getting there with clever phones, brainy glasses, and even brainy cars. That’s where clever contracts helps. One example is the self-autonomous or self-parking vehicles, where clever contracts could put into play a sort of ‘oracle’ that could detect who was at fault in a crash; the sensor or the driver, as well as uncountable other variables. Using wise contracts, an automobile insurance company could charge rates differently based on where, and under which, conditions customers are operating their vehicles.

You can get more money through brainy contracts. Ordinarily, if you dreamed to rent your apartment to someone, you’d need to pay a middleman such as Craigslist or a newspaper to advertise and then again you’d need to pay someone to confirm that the person paid rent and followed through. The ledger cuts your costs. All you do is pay via bitcoin and encode your contract on the ledger. Everyone sees, and you accomplish automatic fulfillment. Brokers, real estate agents, hard money lenders, and anyone associated with the property game can profit.

Individual health records could be encoded and stored on the blockchain with a private key which would grant access only to specific individuals. The same strategy could be used to ensure that research is conducted via HIPAA laws (in a secure and confidential way). Receipts of surgeries could be stored on a blockchain and automatically sent to insurance providers as proof-of-delivery. The ledger, too, could be used for general health care management, such as supervising drugs, regulation compliance, testing results, and managing healthcare supplies.

Wise Contracts are Awesome!

Here’s what clever contracts give you:

Autonomy – You’re the one making the agreement; there’s no need to rely on a broker, lawyer or other intermediaries to confirm. Incidentally, this also knocks out the danger of manipulation by a third party, since execution is managed automatically by the network, rather than by one or more, possibly biased, individuals who may err.

Trust – Your documents are encrypted on a collective ledger. There’s no way that someone can say they lost it.

Backup – Imagine if your bank lost your savings account. On the blockchain, each and every one of your friends has your back. Your documents are duplicated many times over.

Safety – Cryptography, the encryption of websites, keeps your documents safe. There is no hacking. In fact, it would take an abnormally wise hacker to crack the code and infiltrate.

Speed – You’d ordinarily have to spend chunks of time and paperwork to by hand process documents. Wise contracts use software code to automate tasks, thereby pruning hours off a range of business processes.

Savings – Brainy contracts save you money since they knock out the presence of an intermediary. You would, for example, have to pay a notary to witness your transaction.

Accuracy – Automated contracts are not only quicker and cheaper but also avoid the errors that come from by hand packing out heaps of forms.

Here’s how Jeff Garzik, possessor of blockchain services Bloq, described clever contracts:

“Smart contracts … assure a very, very specific set of outcomes. There’s never any confusion and there’s never any need for litigation.”

“Smart Contracts are where the rubber meets the road for businesses and blockchain technology. While a few very specialized distributed financial services use cases for blockchain have appeared—for example, payment ledger services for the Yangon Stock Exchange in Myanmar. Its services on top of blockchain that are indeed interesting. In the Yangon Exchange, it solves the problem of distributed settlement in a trading system that only synchronizes trades twice a day. But the autonomous execution capacities of wise contracts extends the transactional security assurance of blockchain into situations where sophisticated, evolving context transitions are required. And it’s this possibility that has Amazon, Microsoft Azure and IBM Bluemix rolling out Blockchain-as-a-Service (Baas) from the cloud.” – Patrick Hubbard, Head Geek, SolarWinds

Now for Problems

Clever contracts are far from flawless. What if bugs get in the code? Or how should governments regulate such contracts? Or, how would governments tax these brainy contract transactions? As a case in point, recall my rental situation?

What happens if I send the wrong code, or, as lawyer Bill Marino points out , I send the right code, but my apartment is condemned (i.e., taken for public use without my consent) before the rental date arrives? If this were the traditional contract, I could rescind it in court, but the blockchain is a different situation. The contract performs, no matter what.

The list of challenges goes on and on. Experts are attempting to unravel them, but these critical issues do dissuade potential adopters from signing on.

And here’s To the Future of Clever Contracts…

Part of the future of brainy contracts lies in entangling these issues. In Cornell Tech, for example, lawyers, who insist that brainy contracts will come in our everyday life, have dedicated themselves to researching these concerns.

Actually, when it comes to clever contracts, we’re stepping into a sci-fi screen. The IT resource center, Search Compliance suggests that wise contracts may influence switches in certain industries, such as law. In that case, lawyers will transfer from writing traditional contracts to producing standardized brainy contract templates, similar to the standardized traditional contracts that you’ll find on LegalZoom . Other industries such as merchant acquirers, credit companies, and accountants may also employ wise contracts for tasks, such as real time auditing and risk assessments. Actually, the website Blockchain Technologies sees wise contracts merging into a hybrid of paper and digital content where contracts are verified via blockchain and substantiated by physical copy.

Blockchains Where You Can Process Brainy Contracts

Bitcoin : Bitcoin is superb for processing Bitcoin transactions, but has limited capability for processing documents.

Side Chains : This is another name for blockchains that run adjacent to Bitcoin and suggest more scope for processing contracts.

NXT : NXT is a public blockchain platform that contains a limited selection of templates for clever contracts. You have to use what is given; you’re incapable to code your own.

Ethereum : Ethereum is a public blockchain platform and the most advanced for coding and processing wise contracts. You can code whatever you wish, but would have to pay for computing power with “ETH” tokens.

As to the potential of brainy contracts itself, there’s no end to the range of industries it can influence, from healthcare to automobile to real estate and law. The list goes on and on. Says, Ethereum CTO, Gavin Wood

“The potential for [clever contracts] to alter aspects of society is of significant magnitude. This is something that would provide a technical basis for all sorts of social switches, and I find that arousing.

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