The state of blockchain technology today is often compared to the internet in the early 1990s — we’re still in the early innings. While the internet transformed how we share information and connect, blockchain is now transforming how we exchange value and who we trust.
A new vision for the digital era, where value can be exchanged as easily and freely as information, is propelling us from the information age to a new Internet of Value. Beyond cryptocurrency, blockchain enables the exchange of any asset that has value to someone.
One area where the potential of blockchain can begin to be realized is smart contracts, which take advantage of the secure and decentralized ledger that underlies blockchain technology.
How Do Smart Contracts Work?
Where bitcoin uses blockchain technology to send money peer-to-peer instead of through a bank, the Ethereum platform replaces middlemen with smart contracts.
In a smart contract, two parties agree to the terms which is then recorded as code on the blockchain. When a triggering event occurs, such as an expiration date or licensing request, the contract automatically executes the obligations according to the coded terms.
Smart contracts work like a vending machine — you input coins, and immediately get the goods.
This automated process removes friction that makes existing transactions slow and expensive, while also creating new opportunities for interoperability between apps on the same platform.
A few key features of blockchain technology make smart contracts viable for a variety of use cases:
- Transactions on a blockchain are approved by a consensus among participants in the network, making fraud or corruption more difficult.
- The distributed nature of the platform means everyone has the same access to records, making data more resilient against attacks.
- A full transaction history is traceable, allowing anyone in the network to audit the records.
- The decentralized platform acts as a trust layer for the internet, so no intermediary is needed to transact.
Smart contracts on the blockchain have the possibility for disruption in a number of industries, redefining how we work with each other:
Trustworthy Peer-to-Peer Marketplaces
In The Truth Machine: The Blockchain and the Future of Everything, authors Paul Vigna and Michael Casey posit that the success of Uber and Lyft’s ride-sharing business models prove that if we can resolve our trust issues with technology, people will be willing to go into direct exchange with complete strangers. Uber and Lyft have helped people overcome concerns about riding in a stranger’s car with new communications technology and a reputation scoring system, for both drivers and passengers.
Blockchain and smart contracts encourage even greater levels of trust in peer-to-peer transactions, and sets us on a path towards a true sharing economy — without needing to rely on a centralized company like Uber, that takes a 25% cut from each ride or abuses user privacy with its “God view” of rider habits.
Freelance Work Exchanges
Many freelancers have been burned on projects when their client decides to add scope or delays payment for some unclear reason. On the flip side, organizations that hire freelancers can feel duped if they discover that someone’s work experience was falsified and they can’t complete the job they were hired for.
Smart contracts can support a more fair and transparent working relationship, leading to a better experience for both freelancers and clients.
Used as a statement of work, project scope, deadlines, and payment can be coded into the terms of the contract. Payments can be held in escrow in a smart contact at the start of an assignment, to be released on successful completion of work. This helps freelancers combat scope creep, ensuring that any new work doesn’t hold up payments, and allowing them to get paid fairly for additional work.
Smart contracts also increase efficiency when managing freelance workers. Decentralized marketplaces can provide fresh alternatives to established platforms, spurring innovation to support the growing gig economy. By paying freelancers directly, costs for intermediary services can be reduced or cut altogether.
With a verifiable record of projects, certifications & credentials stored on a blockchain, companies that hire freelancers will also be better able to weed out fraudulent applications and hire the most qualified workers.
Digital Rights and Intellectual Property
Smart contracts can act as a platform for the creators of intellectual property to receive value for their work. Copyright and creator/owner attribution can be coded into the terms of a smart contract, providing a traceable record of when IP is used. Most beneficially for artists, content owners and creators can be paid near instantaneously when their license work is used.
There are already a number of examples from different industries looking towards this decentralized model of protecting digital content:
Music: Publishing music as tokens on a blockchain allows musicians to retain ownership of their IP, and helps them get paid.
Video: Companies like VideoCoin and Livetree are building a new kind of infrastructure for videos on the blockchain; decentralizing cloud-based video storage for greater efficiency and creating a new type of economic model where individuals who back a campaign own a tiny portion of the copyrights, which gives them ownership of the finished project.
Images: Kodak is creating a blockchain-powered image rights management platform dubbed as KODAKOne, along with a photo-centric cryptocurrency, known as KODCAKCoin.
Games: CryptoKitties is one of the world’s first blockchain games, built on the Ethereum protocol. Like Beanie Babies before them, CryptoKitties are collectibles. Each CryptoKitty has unique ‘cattributes’ (core ‘DNA’ that’s stored on the blockchain), and can be bought or sold with Ether, traded peer-to-peer, and bred to create new kittens with some of their parents’ traits. These digital kittens are a fun and easy way to bring the concepts of blockchain and digital scarcity to a larger audience beyond the early adopters of cryptocurrency.
A New Vision for the Digital Era
Bitcoin was the first app on a blockchain — similar to how email was one of the first apps for the internet. Digital currencies are only the beginning of a flood of potential uses for the new technology. Applications built on blockchain technology, such as smart contracts, can provide greater trust, security, and efficiency for many organizations.
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