Smart Contract: Current and Future perspective

In this article, we will look at what applications are being developed using smart contracts, what are the current challenges and our view on the future of smart Contracts.

First, let’s understand the role of smart contract. Smart contract

defines and executes transactions in the form of a software code. It comprises

of operations that act on the state of the blockchain ledger. So, the current

capability is to manipulate and view the state in the blockchain and ensure

that the shared ledger stays consistent across all the nodes in the network.

If we decide to extend the behavior of smart contract beyond just

manipulating and retrieving the ledger state, like interacting with external

systems for data or a third-party service, then these new requirements or

extensions can impose challenges that need to be addressed. To understand this

in detail, let’s take an example of a DApp, where there is a requirement to

read data from a public website (say stock price or forecast) as part of the

smart contract functionality. Even if the data may not change in the future,

how can one verify and confirm that the data received is same, genuine and

unaltered throughout the network. In such a scenario, we would need a

third-party system, which provides a transaction proof of the data that was

accessed and retrieved at that moment. This third-party system providing

secured transactions and value is referred to as oracle in blockchain

terminology. So instead of smart contract accessing the public feed, the oracles

extract the information and push the data into the smart contract.

Let’s take another example of an existing business network or multiple

networks, already having its own set of enterprise data maintained in a data

store like relational databases or some legacy systems. How it can leverage

blockchain technology for trust, visibility and speedy settlement and how smart

contract can play a role here? Do we end up replacing legacy systems to make it

work with the blockchain network or do we find out a way to achieve consensus

on the existing enterprise data without replacing old systems?

To understand this, let’s take an example of a trade finance

application where multiple entities like banks (consortium of importer and

exporter banks), shipment and logistic firms, custom/port authorities, buyers

and sellers - all maintaining their own respective systems. They are looking to

form a consortium of a trade finance network with the objective to devise a

common smart contract that can be made accessible and visible to all the

entities along with enforcing trust and speedy settlement.

In order to realize this use case, each system would need to provide

their respective data in the form of attributes (we will refer to this as

shared business attributes) which is essential for trade to happen. Think of

shared business attributes as a common schema definition for a trade, where

each entity owns and provides their respective data and make updates to it. The

smart contract would then be bootstrapped with shared business attributes from

each system. Each entity based on where they are in the trade process, would

make necessary state changes to the smart contract and update the ledger and

their respective backend systems. For example, once the goods are delivered,

the shipment vendor would need to update their backend system, say a SAP

application (for their actual processing and reporting). In order for the

external application to receive data or attributes value via smart contract, it

needs to listen to the events generated from the blockchain network (say order

received event) and accordingly make updates to their backend system.

So, in a nutshell, the current generation of smart contracts and its

use cases would be around providing shared business attributes that will be

visible to all the concerned entities, while the rest of the functionality would

still happen in their respective systems (like SAP, CRM or Mainframe

system).  The smart contracts of today

would need to work in tandem with external systems, be it a SAP or a bank

legacy application and not to replace existing systems.

In the future as blockchain platforms and smart contract technology

evolves, we envision a seamless integration between smart contracts and the

external systems. Most importantly the application integration should not break

the consensus and therefore there is a need to create a secured environment

(using crypto materials) that can seamlessly communicate with external systems.

We will refer to this as an ‘external contract container’ responsible for

integrating with the outside world. As we dwell deeper into this integration

scenario, it might also make sense that the ‘external contract container’

should not run on all the nodes. For example, the shipment entity or node

updating its SAP system need to happen only once and not by all the nodes

(other participants of the blockchain network). So we are looking at only

certain nodes, which are authorized based on their roles, running the ‘external

contract container’ to communicate with external systems. We provided only one

integration scenario, but there would be many such integrations patterns

emerging in the future.

As you see the function of smart contract will evolve in future to

cater to many such requirements, we are probably looking at the first

generations of blockchain smart contract technology. We also envision new

blockchain platforms with new consensus algorithms addressing external

application integration using smart contract technologies and many more

innovations in this space that will enable the business and consumer networks

perform business with trust and transparency as part of next generation

internet applications.

To conclude this section, the golden rule for any blockchain transaction is that it should be deterministic in nature. Using smart contracts allows us to manipulate the state in the blockchain in a consistent way. This is ideal for any use cases, which require shared visibility and trust across parties, where collaboration happens through an automated workflow and updates to the blockchain state is handled by smart contracts.

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