Blockchain is a hot topic at the moment, mostly because it’s the underlying technology behind bitcoin and other cryptocurrencies. Blockchain and cryptocurrencies go together like the Internet and email, but in the same way that you can do more with the Internet than just send emails, you can do more with blockchain than just storing bitcoin. The easiest way to think of blockchain is as a new type of database which can’t be corrupted or compromised. The blockchain itself is distributed across a number of different hosts (similar to how bit torrents and other forms of peer-to-peer sharing work), which means that even if one version of the ledger is corrupted or compromised, the other instances will remain unaffected. As you can probably imagine, this makes it a highly versatile technology that has applications across a wide range of industries. One of the blockchain’s most promising applications is the field of smart contracts. That’s because as an interoperable and incorruptible system, it can add an extra layer of openness and security. It can raise people’s confidence and pave the way towards a fairer system.
One of the biggest benefits of blockchain is that it can act as a decentralized system that cuts out the middlemen. Smart contracts are being touted as something that one day could replace lawyers. The idea is to use computerized contracts which are stored within the blockchain and which can be automatically activated if certain conditions are met. Smart contracts can be stored securely and accessed by all parties through a decentralized system. Any attempts to change the contract could be rejected and all stakeholders will be automatically informed. They’re easy to use once the infrastructure is in place and effectively functions as automated lawyers. In the past, you’d need to pay a lawyer to prepare and authenticate the document. With smart contracts, you simply pay a small fee and immediately receive the documentation. Because of this, smart contracts are generally faster and more convenient, which is why it’s more and more common to find people tapping into the blockchain to streamline their workflows. It can offer the perfect mixture of security and ease of use whenever you’re exchanging anything of monetary value, from money to property and shares. Better still, there’s no need to pay a cut to a middleman.
The dark side of smart contracts
This Maas, law student and founder of LawAndBlockchain.eu, opened up about the real issues of smart contracts in an article for Hackernoon. He explained: “Last year, the DAO, a decentralized ‘autonomous’ investment fund, got hacked for $50 million. In July, a hacker was able to steal $31million of Ether by exploiting a bug found in Parity’s wallets. Today, we have the worst hack yet, only this time, the stakes are even bigger and it is all just one big Problem.” Maas was referring to a mistake made by a user, who’d flagged an issue with Parity, a company that offers smart contracts for users of the Ethereum blockchain. The developer figured out that there was a vulnerability that allowed him to become the “owner” of the contract, which he subsequently exploited to “kill” it. To be fair to him, he didn’t really understand what he was doing. But ultimately, the effect was that up to $300 million worth of Ethereum was effectively deleted. Gone. Kaput. The problem is that smart contracts are only as good as the developers who create them. And for a developer to create smart contracts that stand the test of time, they need to understand exactly how the smart contracts fit in with the rest of the business. They also need to put security front and center and actively take steps to break their own systems to hunt for bugs and vulnerabilities. Parity was founded by Ethereum co-founder Gavin Wood and so you’d expect a certain amount of quality. If even Parity has weaknesses, imagine what will happen if you hire a sub-par developer.