Blockchain 2.0

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© Jerome Kehrli @ niceideas.ch
https://www.niceideas.ch/roller2/badtrash/entry/blockchain-2-0-from-bitcoin
Blockchain 2.0
From Bitcoin Transactions to Smart Contracts

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1. Blockchain 2.0 and Smart Contracts

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Blockchains are a very powerful technology
capable of going much further than only "simple" financial transaction;
capable of performing complex operations;
capable of understanding much more than just how many bitcoins one currently has in
his digital wallet.
This is where the idea of Smart Contracts come in.
Smart Contracts
are in the process of becoming a cornerstone for enterprise blockchain applications
will become one of the pillars of blockchain technology.
Blockchain technology

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The Blockchain 2.0 is an evolution of the blockchain protocol
enabling not only to exchange transaction but rather code and programs in the form of
Smart Contracts
Now developers are allowed to build programs and API's on the Blockchain Protocol,
programs that can be entrusted with money.
Smart contracts are programs that encode certain conditions and outcomes.
For instance, When a transaction between 2 parties occurs, the program can verify if
the product/service has been sent by the supplier. Only after verification is the sum
transmitted to the suppliers account.
Apart from Financial transactions, smart contracts are now entering a whole lot
of different industry.
For instance in the Legal System, companies like Empowered Law use the public
distributed ledger of transactions that makes up the Block Chain to provide Multi-
Signature account services for asset protection, estate planning, dispute resolution,
leasing and corporate governance.
Blockchain 2.0

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Smart contract is a term used to describe computer program code
that is capable of facilitating, executing, and enforcing the
negotiation or performance of an agreement (i.e. contract) using
blockchain technology.
The entire process is automated can act as a complement, or
substitute, for legal contracts, where the terms of the smart contract are
recorded in a computer language as a set of instructions.
Smart Contract Definition

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From Legal Contracts to Smart Contracts
Traditional physical
contracts
contain legal
language on a vast
amounts of printed
documents and
heavily rely on third
parties for
enforcement.
Legal enforcement
is very time
consuming,
and very ambiguous.
If things go astray,
contract parties often must
rely on the public judicial
system to remedy the
situation, which can
be very costly
and time consuming.
Smart contracts
are created by computer
programmers
are entirely digital and
written using
programming code
This computer code
defines the rules and
consequences in the
same way that a
traditional legal
document would,
states the obligations,
benefits and penalties
which may be due to
either party in various
different circumstances.
Is automatically
executed by a
distributed ledger
system.

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Deterministic
Since a Smart Contract code is executed on multiple distributed nodes simultaneously,
it needs to be deterministic i.e. given an input, all nodes should produce the same
output.
That implies the Smart Contract code should not have any randomness;
it should be independent of time (within a small time window because the code might get
executed a slightly different time in each of the nodes);
and we should be able to execute the code multiple times.
Immutable
Smart Contract code is immutable meaning that once deployed it cannot be changed.
This of course is beneficial from the trust perspective but it also raises some
challenges (e.g. how to fix a code bug) and implies that Smart Contract code requires
additional due diligence/governance.
Verifiable
Once deployed, Smart Contract code gets a unique address.
Before using the Smart Contract, interested parties can view or verify the code.
Smart Contract characteristics.

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Speed and real-time updates.
Because smart contracts use software code to automate tasks that are typically
accomplished through manual means, they can increase the speed of a wide variety of
business processes.
Accuracy
Automated transactions are not only faster but less prone to manual error.
Lower execution risk
The decentralized process of execution virtually eliminates the risk of manipulation,
nonperformance, or errors, since execution is managed automatically by the network
rather than an individual party.
Fewer intermediaries
Smart contracts can reduce or eliminate reliance on third-party intermediaries that
provide "trust" services such as escrow between counterparties.
Lower cost
New processes enabled by smart contracts require less human intervention and fewer
intermediaries and will therefore reduce costs.
New business or operational models
Because smart contracts provide a low-cost way of ensuring that the transactions are
reliably performed as agreed upon, they will enable new kinds of businesses,
from peer-to-peer renewable energy trading to automated access to vehicles and storage units.
Smart Contracts benefits

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2. Smart Contract Operations

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Coding : What goes into a Smart Contract
Because smart contracts work like computer programs, it is very important that they do
exactly what the parties want them to do.
This is achieved by inputting the proper logic when writing a smart contract : the code
behaves in predefined ways and doesn't have the linguistic nuances of human
languages !
Distributed Ledgers : How the smart contract is sent out
The code is then encrypted and sent out to other computers via a distributed network of
ledgers (i.e. Distributed Ledgers).
The contract is sent out similar to the way that a network update of a bitcoin transaction
would occur.
Execution : How it is processed
One the computers in this network of distributed ledgers receive the code, they each
come to an individual agreement on the results of the code execution.
The network would then update the distributed ledgers to record the execution of the
contract, and then monitor for compliance with the terms of the smart contract.
In this type of system, single party manipulation is averted because control over the
execution of the smart contract is no longer possible because execution is no longer in
the hands of a single party.
How Smart Contracts work

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Smart Contract and Oracles
In order to interact with the
real world, these systems rely
on cryptographic signatures
submitted by outside systems
called "oracles".
Oracles are required to connect
smart contracts to critical data
feeds, any web API or various
accepted payment methods.
As the oracle is a centralized party, one shouldn't take its response for granted.
Oracle can be compromized and some risk mitigation approaches are required
One idea, for instance, is to use several source of data to come to a consensus
Oraclizes provides its own solution to this trust issue and other initiatives work on other
kind of solutions, for instance Codius.

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A Decentralized Autonomous Organization (DAO) is an organization that is run through
rules encoded as computer programs called smart contracts.
These rules provide a community with governance rules.
These rules are unbreakable, secured, universal, public and untamperable
A DAO is a form of incorruptible organization owned by the people who created it and
finance it and whose rules are public.
A DAO brings three new elements in comparison with a traditional organization:
A DAO cannot be stopped or broken
No single person or organization can control the DAO. None can tamper with it, hack it or cheat it.
Everything in the DAO is public and transparent
Corporations and businesses as DAOs
Corporations are a complex set of contracts and agreements.
Contracts with vendors and customers ensure supply chains are established and maintained.
Lease agreements cover office space, vehicles, large machinery and rights to intellectual property.
And so on ...
Smart contracts exist without the need for those institutional layers.
An organization can be built where all of these agreements are replaced by such smart
contracts, and in essence the corporation will exist entirely as an entity on a blockchain.
DAO

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No Smart
Contracts
Smart Contracts
possible
Turing-Complete
Smart Contracts
What ? Distributed
transaction or
accounting
storage
Distributed
computing of logic
available in pre-
designed
templates
Distributed
computing of any
logic
Example
Technologies
Bitcoin (public)
Litecoin (public)
Multichain
(private)
NXT (public)
R3 (private)
Ethereum (public)
Eris (private)
Clearmatics
(private)
New Blockchain technologies

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R3/Corda is the private blockchain technology of the R3 consortium.
The R3 consortium is constituted by more than 70 of the world biggest financial
institutions in research and development of blockchain usage in the financial system.
The consortium's joint efforts have created an open-source blockchain platform called
Corda
geared towards the financial world as it handles more complex transactions and restricts
access to transaction data.
provide a platform with common services to ensure that any services built on top are
compatible between the network participants,
whilst still fostering innovation and faster time to market as the underlying infrastructure would
be accepted and understood by at least the founding firms.
Corda is a distributed ledger platform
designed from the ground up to record, manage and synchronise financial
agreements between regulated financial institutions.
heavily inspired by and captures the benefits of blockchain systems,
without the design choices that make blockchains inappropriate for many banking
scenarios.
R3/Corda and Smart Contract Templates

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Corda
has no unnecessary global sharing of data: only those parties with a legitimate need to
know can see the data within an agreement
choreographs workflow between firms without a central controller
achieves consensus between firms at the level of individual deals, not the level of the
system
supports a variety of consensus mechanisms
has no native cryptocurrency
records an explicit link between human-language legal prose documents and smart
contract code
Corda's design directly enables regulatory and supervisory observer nodes
Corda transactions are validated by parties to the transaction rather than a
broader pool of unrelated validators
R3/Corda Key features

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Ethereum is software running on a network of computers that ensures that data
and small computer programs called smart contracts are replicated and
processed on all the computers on the network, without a central coordinator.
The vision is to create an unstoppable, censorship-resistant , self-sustaining
and decentralised world computer.
The official website is https://www.ethereum.org
What Bitcoin does for distributed
data storage, Ethereum does it for
distributed data storage plus
computations.
The small computer programs
being run are called smart
contracts,
these contracts are run by
participants on their machines
using a sort of operating system
called an "Ethereum Virtual
Machine".
Ethereum

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Concept Description
ETH / Ether Ethereum's inbuilt native cryptocurrency, used
for paying for smart contracts to run
Ethereum VM,
Swarm and
Whisperer
Decentralized Computer,
file storage and
communication protocols
Solidity, Serpent and LLL Smart Contract Programming Language
geth, eth,
pyethapp
The main Ethereum software, written in
different language
meteor-dapp-wallet, mist GUI applications running on top of geth or eth
Frontier, Homestead,
Metropolis, Serenity
Friendly names for different releases
Ethereum Concepts

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Ethers
The digital tokens or coins in Ethereum are called ether.
Ether are used as crypto fuel or costs of transaction.
Developers have to use ether to submit smart contract rules/code to the blockchain and
users have to spend or burn ether to invoke transactions for an application.
Transactions will roll back if they run out of gas (the amount of ether specified).
Ether can be traded against bitcoins and other fiat currencies via cryptocurrency
exchanges.

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The Ethereum Virtual Machine is the “calculate” element that can run contract
logic
→ This is computation without relying on a central server.
Swarm is Peer-to-Peer file sharing, similar to BitTorrent, but incentivized with
micropayments of ETH.
Files are split into chunks, distributed and stored with participating volunteers.
These nodes that store and serve the chunks are compensated with ETH from those
storing and retrieving the data.
→ This is file storage without relying on a central server.
Whisper is an encrypted messaging protocol that allows nodes to send
messages directly to each other in a secure way and that also hides the sender
and receiver from third party snoopers.
→ This is communications without relying on a central server.
Swarm and Whisper

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Solidity
similar to the language Javascript.
This is currently the most popular and functional smart contract scripting
language.
Serpent
similar to the language Python, and was popular in the early history of
Ethereum.
LLL (Lisp Like Language)
similar to Lisp and was only really used in the very early days.
It is probably the hardest to write in.
Smart Contract languages: Solidity / Serpent, LLL

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geth
written in a language called GO
https://github.com/ethereum/go-ethereum
Eth
written in C++
https://github.com/ethereum/cpp-ethereum
pyethapp
written in Python
https://github.com/ethereum/pyethapp
Ethereum software: geth, eth, pyethapp

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In Bitcoin, there is a concept called address where bitcoins are stored - like a bank
account number, but for bitcoins.
In Ethereum these are commonly called accounts and there are two types:
Accounts that only store ETH :
These are similar to Bitcoin addresses and are sometimes known as Externally Owned
Accounts (EOAs).
One makes payments from these accounts by signing transactions with the appropriate
private key.
Accounts that store ETH and have code (smart contracts) that can be run
These smart contracts are activated by a transaction sending ETH into it.
Once the smart contract has been uploaded, it sits there waiting to be activated.
Accounts

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Gas is the internal pricing for running a transaction or contract in Ethereum.
It's purpose is to decouple the unit of Ether (ETH) and its market value from the unit to
measure computational use (gas).
Thus, a miner can decide to increase or decrease the use of gas according to its
needs, while if need be, the price of gas can be increased or decreased accordingly,
avoiding a situation in which an increase in the price of ETH would cause the need to
change all computing cost prices expressed in gas prices.
The originator of the transaction sets the price of gas, to which the miner can or
not accept.
He has to pay [gas_price * gas] up front from the sending account.
If some gas is left after the execution, it is refunded in the same way.
This way, If ETH market value goes up, miners can agree on decreasing the gas price
to keep computing cost constant, and the other way around
In this sense, the transaction is everything Ethereum can do
Deploying a Smart Contract
Calling a Smart Contract API
Getting an event from a Smart Contract
Simply sending Ethers to another account
Gas and Gas Price

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The gas price per transaction or contract is set up to deal with the Turing
Complete nature of Ethereum
The idea is to stop denial of service attacks from infinite loops, encourage efficiency in
the code - and to make an attacker pay for the resources they use, from bandwidth
through to CPU calculations through to storage.
So for example 10 Szabo, or 0.00001 Ether or 1 Gas can execute a line of code or
some command.
If there is not enough Ether in the account to perform the transaction or message then
it is considered invalid.
The more complex the commands you wish to execute, the more gas (and
Ether) you have to pay.
Gas and Gas Price (2)

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Bitcoin Ethereum
Applications Digital Cash
Merchant Payments
Currency Trading
Smart Contracts Application Platform
Ownership No one owns Bitcoin. Developer community
and mining pool consensus drives roadmap
Ethereum Foundation develops the platform and
roadmap for Ethereum
Blockchain Blockchain is public and decentralized.
New blocks mined every 10 minutes.
SHA-256 Proof of Work and consensus
verification.
Blockchain is public and decentralized.
New blocks mined every 12 seconds.
Ethash proof of work and consensus verification.
Uncle blocks accepted
Coins 15.3 million of a total possible of 21 millions
bitcoins have been mined.
Current block reward of 25 bitcoins halving
every 210'000 blocks
72 million ethers premined
5 ethers generated as block reward, 4.3 for uncle
blocks.
No cap; linear rising annual ether limit.
Mining Full and light nodes are allowed.
Increasing barriers to CPU mining.
Near centralized mining industry with ASIC
and FGPA mining in large scale data centers.
Current Frontier release requires full nodes.
Ethash proof of work is ASIC resistant and memory
hard. GPU friendly by design.
Trading Bitcoins have a market cap of about $6 billion
and are trading around $400 in Q1 2016.
Ether market cap approaching $1 billion trading at
$11 in 2016.
Second largest cryptocoin by market cap.
Ethereum and Bitcoin Differences

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Etherscripter
Imagine the following scenario :
One has built a website and
someone wants to buy it for
$5000 but they can only pay in
March.
In the traditional approach, one
transfers control of the website
and write down what's been
agreed on a piece of paper.
March arrives and it seems there
has been some confusion.
You assumed the contract meant
this March but they insist they
meant next March.
Get ready to argue in court about
the meaning of "March".
http://etherscripter.com/.
Etherscripter is a Visual Smart Contrat
Builder for Ethereum.

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Hello World in Ethereum / Solidity
We will see here a Hello World program developed using Solidity.
Solidity is the prefered language by many Smart Contract developers and IMHO
a de-facto standard.
I will present here the greeter program as presented in
https://www.ethereum.org/greeter
The Greeter is an intelligent digital entity that lives on the blockchain and is able
to have conversations with anyone who interacts with it, based on its input.
Next slide presents the Code of the Greeter Smart Contract in Solidity

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Hello World in Ethereum / Solidity (2)
/* A first abstraction representing and "mortal" entity */
contract mortal {
address owner; // Define variable owner of the type address
/* this constructor is executed at initialization and sets the owner of the contract
It is run only when the contract is created. */
function mortal() {
owner = msg.sender; /* msg is an implicit parameter */
}
/* Function to recover the funds on the contract */
function kill() {
/* Any "mortal" can be destroyed only by its owner */
if (msg.sender == owner) {
selfdestruct(owner);
}
}
}
/* Our greeter "Smart Contract" */
contract greeter is mortal {
string greeting; // define variable greeting of the type string
/* this runs when the contract is executed */
function greeter(string _greeting) public {
greeting = _greeting;
}
/* main function */
function greet() constant returns (string) {
return greeting;
}
}

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The deployment and the
initialization of a greeter Smart
Contract (instance) is performed
using the commands on the next
slide in the geth console
Deploying the Greeter

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/* compile greeter source */
var greeterCompiled = web3.eth.compile.solidity(...)
/* The greeting we will use in our greeter "instance" */
var _greeting = "Hello World!"
/* Define greeter Smart Contract Type */
var greeterContract = web3.eth.contract (greeterCompiled.greeter.info.abiDefinition);
/* Instantiate / Deploy greeter smart contract */
var greeter = greeterContract.new (_greeting,
{from : web3.eth.accounts[0],
data : greeterCompiled.greeter.code,
gas : 300000
},
function(e, contract){ /* event listener callback */
/* If no error occured ... */
if (!e) {
if (!contract.address) {
console.log("Contract transaction send: TransactionHash: " + contract.transactionHash
+ " waiting to be mined...");
} else {
console.log("Contract mined! Address: " + contract.address);
console.log(contract);
}
} else {
/* If an error occured, log the error */
console.log(contract);
}
});
Deploying the Greeter (2)

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After typing these commands on the geth console, one should wait up to 30
seconds before seeing a message like this:
Contract mined! address: 0xdaa24d02bad7e9d6a80106db164bad9399a0423e
Interactions
Interacting with the greeter
greeter.greet();
'Hello World!'
Sharing the greeter with other users
var ABI = greeterCompiled.greeter.info.abiDefinition;
var Address = greeter.address;
Then communicate these informations to another user, who can do :
var greeter = eth.contract(ABI).at(Address);
greeter.greet();
'Hello World!'

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Sub-currency example
This contract implements the simplest form of a cryptocurrency.
Only the contract owner will be able to generate coins.
Anyone can send coins to each other without any need for registering with username and password -
all you need is an Ethereum keypair.
http://solidity.readthedocs.io/en/develop/introduction-to-smart-contracts.html#subcurrency-
example
Democracy DAO
The example below creates a first decentralized autonomous organization, or DAO.
Think of the DAO as the constitution of a country, the executive branch of a government or maybe
like a robotic manager for an organization.
The DAO receives the money that your organization raises, keeps it safe and uses it to fund whatever
its members want by voting about it.
The robot is incorruptible, will never defraud the bank, never create secret plans, never use the
money for anything other than what its constituents voted on.
The DAO will never disappear, never run away and cannot be controlled by anyone other than its own
citizens.
https://github.com/ethereum/go-ethereum/wiki/Contract-Tutorial#democracy-dao
Further Ethereum Examples

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GUI
Mist
Mist is more of a platform running Dapps - for
Distributed Applications - where the default
applications are the Smart Contracts catalog,
the wallet app, etc.
Mist intents to provide the user with an App
Store-like User Interface to Smart Contracts:
meteor-dapp-wallet
More oriented (for now) towards developers. It
provides Ethereum users with a graphical way to
deploy Smart Contracts and interact with Smart
Contracts or provide all the possible ways to
interact with deployed Smart Contracts.
Provides one single dapp which is the wallet
application. It is not intended to be a more
general use platform such as Mist.

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Ethereum software enables a user to set up a "private" or "testnet" Ethereum
chain that is separate from the main Ethereum chain.
This is very useful for testing distributed apps.
It is really straightforward in addition.
One simply needs to invoke geth with arguments that dictate a private
Ethereum chain :
Custom Genesis File
Custom Data Directory
Custom NetworkID
https://souptacular.gitbooks.io/ethereum-tutorials-and-tips-by-
hudson/content/private-chain.html
Private chains in Ethereum

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The DAO was a digital Decentralized Autonomous Organization and a form
of investor-directed venture capital fund.
The DAO had an objective to provide a new decentralized business model for
organizing both commercial and non-profit enterprises.
It had no conventional management structure or board of directors.
The code of the DAO is open-source.
The DAO was intended to operate as “a hub that disperses funds (currently in
Ether, the Ethereum value token) to projects”.
Investors receive voting rights by means of a digital share token;
they vote on proposals that are submitted by "contractors" and
a group of volunteers called "curators" check the identity of people submitting
proposals and make sure the projects are legal before "whitelisting" them.
The profits from the investments will then flow back to its stakeholders.
Since 28 May 2016 the DAO tokens were tradable on various cryptocurrency
exchanges.
The DAO is Code

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June 9, 2016
An Ethereum developer on Github pointed out a flaw relating to "recursive calls" in early June that
was picked up and blogged by Peter Vessenes, founder of the Blockchain Foundation on .
June 14
fixes had been proposed and were awaiting approval by members of The DAO.
June 16
further attention was called to recursive call vulnerabilities by variuous bloggers.
It's important to note that the vulnerabilities discussed here were not related to the blochchain technology itself, but
rather by to the specific implementation of The DAO Smart Contract.
June 17
The DAO was subjected to a hack that deployed a combination of vulnerabilities, including the one
concerning recursive calls,
the hacker gained control of 3.6 million Ether, around a third of the 11.5 million Ether that had been committed to
The DAO;
the stolen Ether had a value of about $50M at the time of the hack.
July 20
the Ethereum community decided to hard-fork the Ethereum blockchain to restore virtually all funds to
the original contract.
This fork of the blockchain is a tsunami. It really consisted in "rewriting history" which is precisely what the
blockchain should prevent and protect its users from
This causes a very interesting question : What is better ? A really unbreakable blockchain, making the above fork
really impossible but making it also impossible to recover from thief or badly intentioned people exploiting
vulnerabilities in a Smart Contract ?
It raises the fact that one of the big challenges of the blockchain technology is governance
The DAO is dead !
(https://blog.ethereum.org/2016/06/17/critical-update-re-dao-vulnerability/)

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5. Smart Contract Use Cases

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Use Case What Smart Contracts can do
Trade Clearing and Settlement Manage Approval workflows between counterparties,
calculate trade settlement amounts, and transfer funds
automatically.
Coupon Payments Automatically Calculate and pay periodic coupon payments and returns
principal upon bond expiration.
Commercial and Retail banking Support mortgage lending, loans and crowdfunding, etc.
Insurance Claim Processing Perform error checking, routing, and approval workflows,
and calculate payout based on the type of claim and
underlying policy
Micro-insurance Calculate and transfer micropayments based on usage data
from an Internet-of-Things enabled device (example : pay-
as-you-go automotive insurance)
Cyber-insurance Support insurance for the sharing economy, autonomous
object insurances, peer-to-peer insurances, improve fraud
prevention, etc.
Corporate Finance and Funding Support decentralized venture capital fund that relies on a
wisdom-of-the-crowd voting system to make investment
decisions.
Financial Services

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Electronic Medical Records Provide transfer and/or access to metrical health records
upon multi-signature approvals between patients and
providers.
Population Health Data Access Grant health researchers access to personal health
information; micropayments are automatically transferred to
the patient for participation.
Personal health tracking Track patients' health-related actions through IoT devices
and automatically generates reward baseds on specific
milestones.
Life sciences and Health Care

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Royalty distribution Calculate and distribute royalty payments to artists and
other associated parties according to contracts.
Social networks Decentralizing online communities with a clever rating
system, censorship and moderation elimination
IT Services and Web hosting Eliminate risk of Denial Of Service attacks by having the
site stored everywhere
Technology, Media and Telecom

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Autonomous electric vehicles
charging stations
Process a deposit, enable the charging station and return
remaining fund when complete
Energy and resources

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Casinos, online gambling and
lotteries
Support provably fair casino style gambling, eliminating
cheating and fees.
Prediction platforms combine prediction market and algorithms with power of
decentralization to create forcasting tools
Gaming

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Use Case What Smart Contracts Can do
Record-keeping / company
registry
Update private company share registries and capitalization
table records, and distribute shareholder communication.
Real-Estate / Land registry Maintain land registry, track changes of ownership, update
transactions register
Person registry Track civil status of persons, but also marriage contracts
and wills, death settlements, etc.
Public Sector

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Supply chain and trade finance
documentation
Transfers payments upon (digital) multi-signature approval
for letters of credit and issues port payments upon custody
changes for bills of lading
Product Provenance / Ownership
and History
Facilitates chain-of-custody processes for products in the
supply chain where the party in custody is able to log
evidence about the custody.
(This is a key use case in so many fields : luxury, gold and
diamonds, medical goods, wines, applications, etc.)
Peer to peer transacting Match parties and transfer payments automatically for
various peer-to-peer applications: lending, insurance,
energy, credits, etc.
Voting Validate voter criteria, log vote in the blockchain, and
initiate specific action as a result of the majority vote. Also
applies to elections, in both public or private sectors.
Person identification Support trustworthy identification and proof of identity,
proving authenticity of actions, reputation management,
access management.
Loyalty programs support tracking of product or service usage (e.g Airline
miles)
Cross-Industry

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Scalability
Smart contract platforms are still considered unproven in terms of scalability. Think of
high frequency trading and the million of transaction on stock exchanges every second,
or the hundreds of thousands of facebook updates.
If Big Data technologies is at one side of the scale, then blockchain platforms at at the
other side, for now.
The community is aware of this problem and is thinking of (more than working of)
several approaches such as sharding of computations or off-chain computations.
It remains to be seen whether or not any of these solutions can preserve the key selling
points of a public blockchain i.e. its trustful, permissionless and decentralized nature.
Access to real world information
As discussed above, because smart contracts can reference only information on the
blockchain, trustworthy data services-known as "oracles" - that can push information to
the blockchain will be needed.
Approaches for creating oracles are still emerging. While some initiatives are
promising, this is really a new field and where nothing clear and straightforward has
emerged now.
In addition, a lot of issues are not clearly addressed. For instance, what happens when
things change: what happens if information sources go away, if previously independent
sources merge, if new and better sources emerge?

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Privacy
The code within smart contracts is visible to all parties within the network, which may
not be acceptable for some applications.
For instance, some retailers may not want their deals with their suppliers to be public.
Latency and performance
Blockchains suffer from high latency, given that time passes for each verified block of
transactions to be added to the ledger.
For Ethereum this occurs approximately every 17 seconds - a far cry from the
milliseconds to which we are accustomed while using non-blockchain databases.
Smart Contracts make things even slower and Ethereum's target of a new block
arriving every 12 seconds is quite ambitious and raises the risk of a node drowning
under a backlog of work
Permissioning
While excitement for smart contracts is growing in the realm of both permission-less
and permissioned blockchains, the latter is likely to see faster adoption in industry,
given that complexities around trust, privacy, and scalability are more easily resolved
within a consortium of known parties.

55
Limits of application
There are often good reasons for optionality.
In many contracts, clauses are written into things on purpose to create a channel for arbitration.
For example in a flat rental agreement, wear-and-tear from tenants is acceptable, but major
damage needs to be repaired.
How does code define these things?
Force majeure is present in many contracts to allow for wiggle-room for the parties involved.
In a smart contract environment, how does one party call that without abusing it or referring to a
human arbitrator ?
In addition some business may simply not be modeled in a way that would enable it to
benefit from Smart Contracts or other blockchains.
Governance
If blockchains are to be sustainable in the long run, serious consideration of
appropriate governance mechanisms is needed.
Until hard questions around governance of blockchains are asked, and solutions
implemented, we should brace ourselves for more incidents like that which has befallen
The DAO.

Blockchain 2.0

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