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This article was originally written by IPFS Force Zone Smart Contract has gradually become well-known in the industry with the emergence of Ethereum in 2014. Due to the popularity of DeFi in recent years, the application of smart contracts has also been greatly promoted. But as early as 1995, legal scholar Nick Szabo proposed the concept of smart contracts, that is, a smart contract is a set of commitments defined in digital form, including agreements on which contract participants can execute these commitments. We can give a simple example, for example, A and B bet 100 yuan, and A wins, but B refuses to admit it, so A can only be depressed alone. There are countless such examples in real life, just as there is a common understanding in the programmer world: compared with automated programs, people are not trustworthy. If A and B place a bet through a blockchain smart contract, both parties need to put 100 yuan of assets into the smart contract at the same time. The smart contract will automatically execute and return the winner's principal and the reward to the winner according to the result. In this process, there is no need to worry about who will deny it, nor is there a need to involve a third party for arbitration, which minimizes malicious and unexpected situations and reduces costs. In essence, a smart contract is a set of promises defined in digital form, defined by code and enforced by code. Therefore, the advantages of smart contracts are high certainty, tamper-proof, and uninterruptible, and the efficiency of automated programs can be significantly improved. The decentralization, traceability, and tamper-proof features of blockchain are naturally compatible with smart contracts, and smart contracts have also opened up new application scenarios for blockchain technology. So, what are the specific application scenarios that can bring out the advantages of smart contracts? Application scenarios of smart contracts In June 2020, Compound launched the "Lending is Mining" service, which ignited the DeFi (decentralized finance) market. Crypto asset investors use stablecoins, ETH and other crypto assets as collateral for liquidity mining, which can earn interest and obtain governance tokens. This is the most suitable way of financial management for investors who need to hoard coins. With the continuous influx of investors, lending, DEX and other financial derivatives DeFi projects have sprung up like mushrooms after rain. The price interest rate, mortgage lending, order matching, etc. related to DeFi projects are all realized by smart contracts, allowing participants to enjoy a permissionless and efficient service experience. One of the pain points of the insurance industry is trust. Insurance companies will spend huge manpower and material resources to verify the insurance materials of the insured to avoid losses caused by malicious fraud such as insurance fraud. And the insurer will always doubt whether the insurance I bought will be rejected for various reasons. In this case, smart contracts can partially automate the insurance process. Insurance institutions can write insurance policies into smart contracts and upload them to the blockchain. When specific execution conditions are met, the insurance contract can be automatically executed, which will reduce the cost losses caused by trust issues on both sides. The supply chain is a very complex system, just like the production of computers, where various parts come from different suppliers, involving complicated transaction procedures. Limited by traditional paper contracts, the entire transaction process will be handled by many people, which is prone to errors or fraud. Through smart contracts, a secure and transparent digital version can be provided to all parties, and transaction tasks can be automatically executed. Combining smart contracts with IoT technology can efficiently monitor the links in the supply chain and reduce additional risks. Privacy and data leakage have always been issues of concern to us. It has become an inherent business model for oligarchs to use personal privacy data to make profits, but the ownership of data should belong to individuals. The development of a complete smart contract allows individuals to manage and control their personal information and decide whether to authorize companies to use their private data to gain benefits. Smart contracts can also be used to integrate digital identity information on different chains, breaking down data silos and creating a unique identity system. Current challenges of smart contracts Smart contracts are essentially a technical means, a tool that can improve productivity if used properly, and can be applied to all aspects of production and life. However, smart contracts are not a magic weapon that is always effective. In fact, at the current stage, smart contracts have also exposed some problems. Code vulnerabilities lead to asset damage. Based on the smart contracts built on the blockchain, the security of the underlying platform is guaranteed. However, since smart contracts are still in the development and practice stage, they are still not mature enough in terms of rule making and code implementation. For example, the early TheDAO theft incident and the recent COVER token issuance incident were both caused by loopholes in the code protocol.
In addition, there are teams that specialize in studying various types of smart contracts, and they use business logic loopholes to "take advantage of the situation", which has also caused certain harm to the project owners and the community. The current solution is for a third-party security audit agency to audit the smart contract code before it is released. However, to ensure that smart contracts are impeccable, more practical experience is needed.
Insufficient TPS has limited large-scale commercial use. Due to the limitations of the blockchain "impossible triangle" theory, TPS (system throughput) has once become a strong obstacle for blockchain to reach the public. For example, at this stage, Bitcoin's TPS can only process 7 transactions per second, and Ethereum can only process more than a dozen transactions per second.
When the business volume is large, Ethereum-based DeFi projects need to pay expensive gas fees to be packaged in blocks when they need to upload messages to the chain, which is not conducive to the participation of the majority of users. Of course, the blockchain industry currently has corresponding solutions to this, such as block expansion, side chains, sharding, etc. The development of any emerging technology is not smooth sailing in the early stage. As the cornerstone of Web3.0, blockchain is gradually maturing, and technical barriers are being overcome one by one by the influx of developers. I believe that in the near future, smart contracts will become the rule makers of the new Internet era.
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