Session 6: Smart Contracts and DApps

What are smart contracts? How do they compare to traditional contracts? What are tokens?

1. What are Smart Contracts?

A set of promises, specified in digital form, including protocols within which the parties perform on these promises. Nick Szabo, 1996

2. Bitcoin vs Ethereum Design (1/2)

• Founder: Satoshi Nakamoto vs Vitalik Buterin
• Genesis: January 2009 vs July 2015
• Code: Non Turing (Script) vs Turing Complete (Solidity, Serpent, LLL or Mutan)
• Ledger: UTXO — Transaction vs State — Account Based
• Merkle Trees: Transactions vs Transactions, State, Storage, Receipts (w/nonces)
• Block Time: 10 minutes vs 14 seconds
• Consensus: Proof of Work vs Proof of Work
• Hash Function: SHA 256 vs Ethash

3. Bitcoin vs Ethereum Design (2/2)

• Currency: Bitcoin vs ETH
• Mining: ASIC vs GPU
• Hashrate: 54 Exahash/S vs 260 Terahash/S
• Pre-sale: None vs ICO & prerelease of 72 m ETH
• Rewards: 12.5 BTC/block vs 3 ETH/block
• Monetary Policy: 1/2s every 210,000 blocks (4 yrs) vs Fixed, but changes by updates (was 5/block; proposal to 2)
• Fees: Voluntary vs Needed & market based

4. Smart Contract Potential Use Cases

• Digital Identity
• Records
• Securities
• Trade Finance
• Derivatives
• Financial Data
• Mortgages
• Land Title
• Supply Chain
• Auto Insurance
• Clinical Trials
• Cancer Research

5. Decentralized Applications (dApps)

• Applications run on a Decentralized Blockchain Network
• Generally have a Native Token & Run as a Smart Contract on top of a Platform

6. Initial Coin Offerings — Crowdfunding for Investment & Consumption

• Proceeds used to build networks
• Tokens usually issued prior to being functional
• Development, while open source, is largely centralised
• Promoters allocate themselves ‘pre-mined’ tokens
• Tokens are fungible & transferable
• Scarcity is fostered with preset ‘Monetary policy’
• Purchasers anticipate profits through appreciation

7. Conclusions

• Nakamoto’s P2P Money vs Buterin’s Ethereum P2P Computing
• Smart Contracts & DApps Provide:
  * Decentralized Computing &
  * Self Executing Commitments
• Token Sales for Proposed DApps have Spawned new form of Crowdfunding — Initial Coin Offerings (ICOs)
• Amongst 1000’s of Proposals & Offerings, Few DApps have yet Gained Wide Consumer Adoption
• Smart Contracts and DApps, though, have real Potential to bring Change