BNC launches finance data Oracles, to expand the usefulness of smart-contracts

Smart contracts are an exciting new frontier for technology, business, and law that have the potential to usher in a wave of innovation, and serve as a building block for the next chapter of the internet.

The concept is widely attributed to Nick Szabo who, in the late 1990s, argued that formalizing relationships and encoding them in software and hardware would simplify and secure business logic and functionality.

Szabo wrote of embedding contractual clauses, such as bonds and property rights, while describing the humble vending machine as a “primitive ancestor” of smart contracts. Its hardware and software enforce a simple contractual agreement. Anyone who inserts money will receive a snack in return, even though no explicit contract was ever made with the machine’s owner.

“Smart contracts combine protocols, users interfaces, and promises expressed via those interfaces, to formalize and secure relationships over public networks. This gives us new ways to formalize the digital relationships which are far more functional than their inanimate paper-based ancestors.”
— – Nick Szabo, Formalizing and Securing Relationships on Public Networks

According to Jerry Cuomo, vice president for blockchain technologies at IBM, smart contracts will be useful across industries, from financial services to the insurance industry, and logistics, incorporating Internet of Things sensors.

One use case for smart contracts involves the autonomous vehicle. "That’s a bit of a moonshot use case, but it starts to bring some of the aspects of smart contracts along with the physical world," Cuomo said. "With smart contracts and a blockchain, there could be an ‘oracle’ that could detect who’s actually in control of the car. Is it the driver? Are there some sensors? Or is it that the car has shifted into automatic mode?"

Smart contracts systems, like Ethereum and Bitcoin, have an inherent limit in accessing information from the outside world. Oracles bridge the gap, equipping a smart contract with the data it requires.

The type of data an Oracle delivers can vary enormously, from the temperature on your thermostat, to a stock market price, to a live broadcast of your heartbeat. Oracle’s take the data and format it so that 3rd-party applications can make use of it. What good is that live heartbeat feed if there is no application listening to it for irregularities, or to sense when it has stopped?

21 Inc.’s data marketplace is a breeding ground for user-generated oracles, where anyone with a $5 Raspberry Pi can supply sensor data as an oracle, and sell it for bitcoin. BNC has just launched 14 public Oracles, offering daily pricing for some of the top digital assets, including bitcoin, completely free of charge.

As BNC is in the business of financial data, these initial Public oracles contain daily price information for Digital Assets, specifically Time-Weighted Average Price (TWAP) data, for 14 cryptocurrencies. This format is useful for applications and contracts that need to know the price of the currency on a specific date. Financial Data Oracles can be useful for many different applications, from creating custom cryptosecurities to making new programs, such as wallets, trading bots and a growing number of distributed applications. BNC Oracles can be expanded to include any data to any frequency.

“Blockchain Oracles represent a new delivery system for financial data. We are now a step further down the road to truly decentralized finance.”
— – Fran Strajnar, BNC CEO

“After the latest mishap with a bitcoin exchange, the world is growing more interested in decentralized trade while at the same time Enterprise is waking up to the fact that blockchain solutions and smart contracts need to be ‘Externally Aware’ to be useful,” Strajnar explains. “Good data delivered to smart contracts via Oracles is the catalyst to decentralized derivatives and is going to change the game.”

Oracle dependant securities hold a lot of promise in replacing current financial instruments, due to their advanced features and automated, tamper and censor-proof design. BNC head of Business Development, Rory Manchee, describes a future where a Corporate Treasury working with new programmatic blockchain based tools could hedge their exposure to a currency using daily averages. “The amount they need to hedge will change as the price fluctuates, and settles on the last day’s price of the contract,” Manchee explains. “But the amount may have moved with the rolling daily average.“

Likewise, any derivative instrument, structured product, margin-based or bilateral trade position will need to be backed by some form of collateral, which needs to be dynamically priced or valued. If it falls below a certain level the counterparty must put up further collateral.

“There are collateral management tools out there, but I think Smart Contract Oracles will offer more flexibility and greater risk management. Further ahead, once we really see mainstream finance move to a more smart-contract based infrastructure, I see the opportunity to use Oracles to manage the cash flows of the underlying assets in a structured product"
— – Rory Manchee, BNC head of Business Development

In theory, you could create individual Smart Contract Oracles that each represent a single loan in a mortgage portfolio, and connect this to the repayment data. The creditor could see the performance of the underlying loans, but wouldn’t need to know the names and addresses of the mortgages. "Smart Contract Oracles could also manage the distribution of cashflow – in the form of the coupon, based on the water flow repayment structure for the different risk-based tranches – and provide better market valuation on the mortgage backed security itself," Manchee notes. "It’s traditionally a complex process."

BNC collaborated with smartcontract.com to make the process easy. SmartContract CEO Sergey Nazarov explained that their oracles are highly configurable, privacy preserving and scaleable. “We allow folks to run the oracle on our servers, in an oracle network and/or in an easy to setup docker image based on their preferences for decentralization.”

SmartContract also offers the ability to add legal documents to the code-based contracts interacting with these oracles. The interface allows users to upload a timestamped document, making it available for the world to read on the Blockchain. Agreeing with and digitally signing the legal document can then become a condition of using the smart contract.

“Attaching legal documents smart contracts, in order to make the entire smart contract lifecycle legally binding is something we are very experienced in and excited about,” Nazarov explained. “Derivatives are a good wide ranging use case that I think makes sense from both a clearing & settlement perspective, collateral custody perspective and regulatory transparency perspective.”

“Oracles are an important part of the Ethereum smart contract ecosystem and are crucial in bringing many applications to fruition; we look forward to seeing more interesting dapps be built on top of these kinds of services.”
— – Vitalik Buterin, Ethereum Founder

BNC Oracles and API’s will be made available at the Thomson Reuters HackETHon in London during the 9th – 11th Sept. This weekend even is an opportunity for teams to explore the scope of Ethereum’s blockchain and smart contracts to codify all manner of processes within the enterprise. The event includes access to data, cutting-edge tools, guidance and support from the Ethereum Foundation, academics and industry professionals active in the space.

BNC builds industry benchmarks and custom indices for tracking crypto-currencies and other digital assets. Contact us if you want to know more about our Oracles and Market Data solutions.