When bitcoin initially came on to the financial playing field in 2009, little note was taken of the fledgling technology. As the years have passed, it has received applause and criticism. However, bitcoin as a currency has not experienced the same staggering rise to fame as it’s underlying technology.
Blockchain technology has taken on many different forms, attracting attention from the financial industry, insurance firms, regulatory bodies and many more. It’s potential to disrupt bureaucratic systems in new and interesting ways is tempting both large organisations and governments. One specific aspect is the smart contract.
Smart contracts are computer protocols that are able to facilitate, verify, or enforce the negotiation or performance of a contract. They are able to replicate logic that upholds contractual clauses, and should be partially/fully self-executing, and/or self-enforcing. The aim of a smart contract is to achieve heightened security, as they are touted as being tamper proof, and minimise human error.
As opposed to previous systems requiring third-parties, such as a lawyer, they are able to circumvent traditional infrastructure. In addition, they have the ability to reduce financial transaction costs, and risk, through non-discriminatory execution.
Bitcoin’s blockchain seamlessly processes bitcoin transactions, but does not directly offer smart contracts. The Bitcoin network has purposefully omitted Turing completeness, required for smart contracts, to allow the economic incentives the network is built on, and for minimizing the security risks that come with self-executable programs.
“Within the scripts of bitcoin transactions you have a very limited ability to implement rich logic. An example of what is possible in bitcoin is logic requiring multiple signatories to sign a transaction before a payment is made, like needing two signatories in a cheque. However major changes would need to be made to both the mining functions and the mining incentivisation schemes to enable smart contracts proper on Bitcoin’s blockchain.”
This conscious omission has opened the door for alternative platforms to implement smart contracts. Ethereum was one of the first public blockchain companies to do so, with a strong focus on decentralised applications (DAOs) and smart contract inclusion.
The project was announced in January 2014, by inventor and project leader Vitalik Buterin. The platform went on to raise US$18m in a crowdsale of Ether tokens, during July, which fuel the Ethereum network. Much like bitcoins, Ether tokens are used to pay the miners who run the code.
“The team was psyched when we got our first million and our second and our third and so on. It was crazy! Believing that we could deliver the Ethereum platform was one thing, but seeing others believe and want to participate it was incredibly inspiring.”
- Jeffrey Wilcke, Ethereum Founder
The Ethereum contracts are compiled into bytecode, a form of instruction sets which are interpreted by the Ethereum Virtual Machine (EVM), then deployed onto the blockchain. The platform uses a mechanism called gas, in order to limit contracts that might take an extensive period of time to run. However, in theory, any contract can be put into an Ethereum smart contract, and they will be run by the entire network.
Although Ethereum is one of the pioneers of the smart contract, there are certainly other contenders. Counterparty is an open peer-to-peer financial platform that leverages the strengths of Bitcoin, whilst filling the gaps in its limitations. “Counterparty’s built-in Turing-complete scripting language allows anyone to create custom smart contracts and execute their code on the Bitcoin blockchain,” states the developers.
“By encoding data in ordinary Bitcoin transactions, Counterparty extends Bitcoin’s functionality in new and unprecedented ways, opening the door for innovation. The Bitcoin protocol stays exactly the same, while supporting the development and adoption of valuable new features, all secured by the full power of the Bitcoin network.”
Counterparty received some criticism for recreating the Ethereum smart contract on its own platform in 2014. Instead of building their own blockchain, which was considered to be “unnecessarily slow and risky,” the team leveraged Bitcoin’s blockchain and ported Ethereum’s language and EVM to their platform, by using the pyethereum codebase.
The results were hosted on GitHub and remain open for public testing. Their implementation passed 100 percent of pyethereum’s contract execution integration tests.
More recently, RootStock (RSK) is focusing on an open-source contract platform with a 2-way peg to Bitcoin. “RSK connects the two most successful blockchain platforms built to date – Bitcoin and Ethereum – to enable new smart contracting capabilities.” This allows Bitcoin miners to be rewarded via merged mining, as opposed to Counterparty which operates on fees.
The RSK team is focused on strengthening relationships with Bitcoin miners as they are a fundamental pillar in the project. Miners will be able to use their installed capacity to run decentralized smart contracts and merge-mine RSK, which will open up an additional revenue stream.
“RSK Labs founders believe that decentralized blockchains with smart contract capabilities will be the driving force behind global financial inclusion, new democratic political systems and the internet of things.”
RSK recently raised US$1m for further development. The funding round attracted; Bitmain Technology, a bitcoin hardware mining producer; Coinsilium, a blockchain investment firm based out of London; and Digital Currency Group, an investment firm based out of New York.
“This successful round allows RSK Labs to expand its current presence in Latin America to Asia, Europe and US, while securing the funding needed to ensure the complete execution of its roadmap,” the RootStock team divulged.
The RSK private testnet will be opened to a small number of miners, partner companies and users by the end of April. In the months to follow, wallets, block explorers and other enhancements will be introduced, with a fully functional Beta testnet in September this year.