BitHalo offers ‘unbreakable’ blockchain smart contracts

‘Smart Contract’ is a phrase that single handedly promises to uproot some of the most ingrained institutions of past civilizations, answering the question of ‘who owns what?’ by digitizing, automating, decentralizing and cryptographically securing information.

Up until now, there’s been a crucial problem at the heart of society and property rights. How can we know for certain that someone owns a piece of property at a given time, and has acquired it ethically and not through theft or fraud. In other words, how do we prevent the double spend of property?

A solution to this problem has evolved through the natural selection of ideas over centuries, resulting in what stable nation states tend to refer to as notaries, officials that are authorized to perform certain legal formalities. Notaries draw up or certify contracts, deeds, and other documents, they help record property ownership, that should be updated every time a property is sold.

This institution has been functional for those that can afford the costs of going to court to resolve property disputes, and for those lucky enough to have access to functional legal systems.

However as Brave New Coin readers are aware, the definition of ‘legal’ carries the emotional weight of ‘morality,’ which is very difficult to fully comprehend in today’s bureaucratically entangled democracies, not to mention the communist dictatorships of the east.

So complex is this web of laws, regulations, and federal carpet bombing of controls, that in 1980 the Department of Justice gave up counting each and every criminal law in the US, tallying up 3000 after two years. This does not count regulations or case law, which have the force of law. It is theorized that every person in the USA could be found guilty of three felonies every day, most likely without knowing it.

This entrenched bureaucracy has led to an industry of legislators, notaries, and regulators. On the flip side of the coin, the compliance industry is also booming, raising the costs of doing business dramatically. The Enterprise Governance, Risk, and Compliance Market is set to grow from US$15.98 Billion in 2015 to US$31.77 Billion by 2020.

But what if we could build parallel systems of common law, protocols that did not depend fully or partially on after the fact enforcement, but rather on prevention and cryptographically enforceable contracts, sovereign to cypher space?

Nick Szabo, Smart Contract pioneer and computer scientist, argues that “Legal barriers are the most severe costs of doing business across many jurisdictions.”

“Smart contracts can cut through this Gordian knot of jurisdictions. Where smart contracts can increase privity, they can decrease vulnerability to capricious jurisdictions. Where smart contracts can increase observability or verifiability, they can decrease dependence on these obscure local legal codes and enforcement traditions.”
— – Nick Szabo

To this end the lead developer of Halo, David Zimbeck, has created what may be the purest of smart contracts. This is a decentralized, peer-to-peer contracting mechanism, which he argues is “the only way strangers can trust each other.”

The essence of Halo is fairly simple. The two parties involved create a multi-signature account through the use of technology like Bitcoin. This account is 2 of 2, meaning that both parties involved must agree before the funds locked in the account will be released to the appropriate parties.

In this multisig account, they both make a collateral deposit, equal the the price of the trade. On top of that, the buyer of the good or service sends the actual funds to purchase the product.

Once the trade is complete, and the product has been delivered to satisfaction, both parties agree to release the collateral to themselves, and the payment is sent to the seller.

If a dispute arises over the product, both parties have the best possible balance of incentives to work out a solution among themselves. The collateral they have locked in is equal to the possible benefits they can gain from cheating the other.

If no agreement is reached, within a pre specified time period, the funds are destroyed, resulting in a net loss to both parties.

This technology is far from theoretical. In an interview with Brave New Coin, Zimbeck explained the platform, showcasing the decentralized market his Halo platform enables, and how it interacts with Bitcoin and Blackcoin.

He maintains however that Halo is blockchain agnostic, and can be adapted to almost any digital currency.

Some of the theoretical limitations of this type of contract are of course the significant upfront capital required for the collateral. However, when compared to the costs of enforcing contracts through traditional, cross jurisdictional legal systems, it all falls into perspective.

These numbers can also be customized based on the trust level between the parties involved, to the point of having one party front all the collateral in a “Guarantor Contract.”

There are likely endless possible implementations for Smart Contracts, some might be based on reputation systems, others are possibly yet to be imagined. Nevertheless, Halo seem to be the simplest and purest version yet popularized, requiring no third parties and no knowledge of the person you are doing business with. Either party can be anywhere in the world, living in hostile, or as Szabo puts it, “capricious jurisdictions.”

Zimbeck adds that “Because of the blockchain, this is the first time ever that there has been a way to peacefully resolve contracts without using the threat of violence, force, biased third parties or lawyers, instead having the disincentive built into the contract”

BitHalo is still in beta, but the user interface is fairly intuitive and features various wizards that explain in great detail the logic and functionality of each feature. It also contains a custom smart contracting user interface, that can be used to setup complex contracts.

It also features templates for easy to use and entry level agreements, although most of them are not functional yet. The Bithalo client, as seen in the images above, also feature IRC channels and an order book market place. Here, users can create channels that require privileged knowledge to gain access.

While some of the immediate use cases that come to mind may be the trade of illegal goods, Bithalo has a loud and clear disclaimer, which suggests some degree of centralized control over who can access the platform.

“These markets are decentralized. However they are moderated. Do not post illegal content to the markets or you may get blocked. These revolutionary markets are a way of connecting to people worldwide.”
— – Bithalo

When asked if Halo was open source, Zimbeck said it’s not on Github, but the platform is built on top of BitMessege. “If someone asks to see it, I will likely send it to them, though I would change the name of variables, which is regarded as a form of obfuscation. Nevertheless, someone that knows what they are doing will be able to audit the code”