The era of inadvertent contracts legally written by lawyers in $2,000 suits with degrees from Ivy League schools is over. the contracts of the next century will be hybrid smart contract, written in code by programmers wearing a $20 hoodie and living in their NYC-shared apartment.
What is Hybrid Smart Contract?
Smart contracts are self-enforced contracts, written in code and executed by the blockchain. These smart contracts are great at sending and receiving money and performing simple calculations, but they cannot access off-chain data, perform complex calculations, or generate random numbers on their own.
Those limitations previously prevented smart contracts from fulfilling many of the roles of traditional legal contracts. Now, the introduction of the Oracle Network on the blockchain promises to solve this problem. Oracle networks can provide smart contracts with verifiable randomness, off-chain data, and additional computational resources.
Oracle networks are made up of validators that write data on the blockchain. oracle aggregates input from multiple validators so that no single validator has control over the oracle feed. Verifiers can also use various mechanisms to come up with the data they write to further strengthen the validity. for example, Oracle networks that provide verifiable randomness Maybe each validator uses a different pseudorandom number generator.
Oracle networks are decentralized, so there is no need to sacrifice the benefits of decentralization that blockchain provides in order to use Oracle networks. A smart contract that uses an Oracle network is called a hybrid smart contract.
Use cases for hybrid smart contracts
Once hybrid smart contracts have access to off-chain data through the oracle network, they can begin to replace traditional contracts. For example, weather insurance – a type of insurance that pays out in extreme weather conditions, is currently supported by traditional contracts. If an oracle network provides data on extreme weather events, weather insurance can be easily implemented by hybrid smart contracts instead. In general, any contract that makes payments based on real-world events can be implemented on a blockchain, as long as there is an oracle network that can provide that off-chain data.
Hybrid contracts can also implement mechanisms that have higher computational complexity than their non-hybrid counterparts. For example, the Vicki-Clark-Groves (VCG) algorithm is a sealed, bid auction mechanism. Google and Facebook use VCGs to run their ad auctions. The only problem with VCG is that it is difficult to calculate. Implementing the VCG mechanism entirely on the blockchain would be prohibitively expensive. But, if the computation was delegated to off-chain computing using hybrid smart contracts, VCGs could be cost-effective and implemented on the blockchain.
Oracle networks that act as random number generators can, of course, support a number of on-chain gaming and gambling matches, but they can also support randomized algorithms and mechanisms, some of which are based on their non-random use. are more efficient than the random counterparts. An example is an auction mechanism called a candlestick auction, which is equivalent to a standard English auction, except that instead of ending after a certain period of time, the auction ends at a random time. eBay users may be familiar with the scaling problem in which almost all bidding activity occurs just before an auction ends.
This can be frustrating for buyers, as they have little information about the actual auction price before the auction ends. Candlestick auctions solve that problem by encouraging bidders to bid early so that they can receive them before the auction ends. Without a random number generator, it would be impossible to implement a candlestick auction or any other random mechanism or algorithm on the blockchain.
Advantages of hybrid smart contracts over traditional contracts
Unlike traditional contracts, smart contracts are implemented by blockchain, meaning there is no need for an external court system to enforce contracts. Without an expensive court system, contracts are cheap, so more peer-to-peer transactions may be governed by contracts rather than trust.
Contracts between firms located in different countries are often challenging, as different court systems are expensive to navigate, and typically, one nation’s judicial system has limited authority over corporations in other countries. Hybrid smart contracts do not share this weakness; They don’t see nationality at all.
Enforcing traditional contracts through the courts is not only costly but also brings uncertainty in the outcome. There will always be a chance that the lawyers uncover some mysterious loophole buried in the basement of a haunted house that completely nullifies the contract. Even when the contract is airtight, the parties to the contract rely on the continued good faith of their government to ensure that the contract is enforced.
Recent Stop An example of this is on evictions in many states within the US and in countries around the world. Landlords and tenants sign an agreement under the guise that if the rent is not paid, the landlord will have legal recourse against the tenant in the form of eviction. I am not going to argue about whether this decision was justified; This is a discussion for policy makers. What is not up for discussion is that this action by governments around the world effectively nullified every single rental agreement that existed at the time.
This change not only affected tenants who were unable to pay their rent, it also effectively nullified rental agreements between landlords and tenants who could pay. Even tenants who could pay their rent would not be subject to eviction, meaning some of those tenants chose not to pay. Whatever your opinion on the eviction moratorium, it is clear that contracts that can be burned at any time with a rubber stamp by a government official are not desirable compared to hybrid smart contracts.
In the coming years, traditional fiat contracts will be replaced by hybrid smart contracts, as they are faster, more efficient and less vulnerable to legal loopholes. They are less expensive and can be transported across borders as easily as within borders.
The views, opinions and opinions expressed here are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Nick Spanos He is the co-founder of Zap Protocol, a decentralized oracle solution for smart contracts. An early pioneer, Nick founded Bitcoin Center NYC in 2013, the world’s first physical crypto trading floor, located across the NYSE.