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Recentralizing the smart contract may breathe life into Ethereum

18 Sep 2018

Whatever the existential crisis surrounding the value of ether, Ethereum’s smart contracts still hold first-mover advantage and are interoperable across rival blockchains like Hashgraph. Vitalik Buterin recently cited the use of Gas as one revenue stream that would prevent ether from one day going to zero, only the Gas that powers the smart contracts may not be powering Dapps in the future.

When they first emerged, smart contracts were posed as a threat to the livelihoods of lawyers, clerks and all sorts of middlemen; now it has been accepted that in some cases they function better with a central third party overseeing the process.

The latest rout in the price of ether and the anemic uptake in Dapps has opened the debate about the degree of decentralization people really want in their products – going by the current rate, not much.

Not many people care to forgo the back-up of customer service and user experience for the sake of eliminating third-party trust with their provider – as testified by the continued user growth rate of Facebook after multiple data breaches.

While early crypto and blockchain projects have been beating the full decentralization drumbeat, it is starting to fade with the realization of the marginal gains it creates compared to the effort and complexity it entails.

Opening up a new legal field

In the legal field, smart contracts may actually complement the work of lawyers and contrary to cypherpunk ideals they could bolster growth in the legal industry.

A 2017 report from the International Bar Association said:

"with the rising importance of smart contracts and the potential for blockchain technology to be used in other facets of legal practice, the role of the legal practitioner will likely evolve to require lawyers to have at least basic coding knowledge and programming skills."

US-based company Sagewise, built on the Hashgraph blockchain, is re-integrating the human touch with a smart contract resolution platform as a safety net for smart contracts that provides third-party arbitration in disputes.

"One of the bigger issues with smart contracts is that even if there is not an explicit bug, there might just be something in the contract that gives a single party a massive amount of control," said Daniel Rice, co-founder of Sagewise. Because smart contracts are irreversible without a hard fork the resolution of disputes necessitates off-chain input and this is where Sagewise has positioned itself.

"We’ve seen several ICO contracts that allow the creator to freeze or in some cases even execute custom code inside the smart contract. This can defeat the purpose of using a decentralized smart contract completely and is the reason we provide tools that allow for more responsible governance of individual contracts," Rice says.

Human oracles for legal disputes

While the primary use case of ERC20 smart contracts has been for ICOs and fundraising Sagewise is to oversee the arbitration of contracts in use cases from the supply-chain, financial assets and consumer marketplaces such as e-commerce, homesharing and freelance work.

For ICOs, Sagewise keeps issuers accountable to their white paper promises – even if they are only written in the whitepaper and not in the smart contract. In the example of a company which issues shares/tokens to employees with a lockdown period of 12-months, if the company deploys Sagewise’s Software Developer Kit (SDK) it will be notified when an employee sells before the 12 months, allowing them to freeze the smart contract and amend it.

Matthew Griffin of Blockchain Labs, a smart contract writer and auditor, agrees that it’s inevitable a third party would emerge to deploy a centralized platform for smart contracts. "It’s an unfortunate name, because they are neither smart nor contracts. What they do is enforce logic in a powerful way in certain uses. However, they won’t fulfill the vision of disintermediating middle men and professions like lawyers."

"Blockchains and smart contracts are not good at reflecting things in real life."

Staking reputation on a contract

The complexity of full decentralization introduces a dilemma of oracles upon oracles where every piece of data transferred on-chain from the real world has to be from a decentralized source. Re-introducing human trust to the consensus process would take some of the scaling burden off the compute-heavy consensus algorithms like PoW and PoS to achieve full decentralization.

"As much as we would like to you can’t do everything off-chain. I don’t think we’ll be moving to a fully-decentralized world but one where it becomes easier and cheaper to achieve a degree of decentralization, where it makes sense," Griffin says.

Although many would argue the involvement of a third party in a smart contract defeats the purpose of the contract in the first instance, the added value of such a company is the staking of their reputation on the conditions being met which negates the 100% trust a user is usually required to put in the contract.

Sagewise has released a blockchain-based app for digital signatures, Blokusign, which will be integrated with Gmail.

Follow @AndrewBNC


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