Blockchain 2.0 (Part 3): Smart Contract Application Cases and Related Legal Issues

Contracts in the blockchain, or smart contracts, mean that blockchain transactions go far beyond simple transactions such as buying and selling Bitcoin. There will be a wide range of instructions embedded in the blockchain.

Traditional contracts are two or more parties agreeing to do or not do something in exchange for something, and the premise is that they trust each other to fulfill their obligations. The characteristic of smart contracts is that they are also agreements to do or not do something, but there is no need to trust each other. Because smart contracts are completely defined and executed by code, they are completely automatic and cannot be intervened by humans.

Smart contracts can operate in this way because they have three characteristics: autonomy, self-sufficiency, and decentralization. Autonomy means that once the contract is started, it will run automatically without any intervention from its initiator. Secondly, smart contracts can obtain funds by improving services or issuing assets, giving them the ability to obtain resources in a self-sufficient manner. Thirdly, smart contracts are decentralized. They do not rely on a centralized server. They are distributed and run automatically through network nodes.

For example, a smart contract is like a vending machine. You put money in, select a product, and the product will automatically fall out. The same operation will have the same result. Smart contracts are the same. They will be executed according to the pre-set code and will be executed as written.

Smart contracts have huge advantages, but they face two problems. The public is still not familiar with them, and it will take time to popularize them. Second, new laws and regulations are needed to ensure the legal validity of smart contracts. Smart contracts will not only affect contract law, but also extend their influence to other social contracts in the entire society. In the future, with the promulgation of laws related to smart contracts, when concluding a contract, both parties can choose smart contract laws to establish the contract and write it into the code, so that the contract will be automatically executed and protected by law.

Smart contracts can solve some problems in a way that minimizes trust. Minimizing trust can make things more convenient because it replaces manual judgment with fully automatic execution. For example, a smart inheritance contract is like this: when the grandfather dies, the grandson can get the property if he is over 18 years old. This transaction event can be written into the code, and the contract will be executed when an event occurs in the future or is triggered at a certain point in the future. The first condition is that the grandson is over 18 years old, and the program will set a transaction date; the second condition is that it will scan an online death database to prove that the grandfather has passed away. When the smart contract confirms the death information, it automatically sends the property to the grandson.

Smart contracts can also be used in stock exchanges to set trigger mechanisms to automatically execute buy and sell transactions when a certain price is reached. They can also be used on platforms such as JD.com crowdfunding. Contracts can track the fundraising process and set automatic transfers from investor accounts to entrepreneur accounts when crowdfunding goals are reached. The entrepreneur's future budgets and expenses can be tracked and audited, increasing transparency and better protecting investor rights.

Smart contracts have a wide range of applications, but there is still a long way to go before they can be industrialized. However, this field will develop very quickly, so let's wait and see.

About me: My online name is Blue Lotus, my real name is Wang Xiaoming, WeChat/QQ: 263305605. I am a partner of Zhaoxi Network (zhaoxi.co). I am committed to promoting the development of the blockchain industry and promoting blockchain solutions.

Original article: http://wangxiaoming.com/blog/2016/03/15/blockchain-2-smart-contracts/