Blockchain Smart Contracts

Microsoft in the News






Blockchain Smart Contracts

As I have discussed, Blockchain creates a distributed ledger that cannot be tampered with.  That in itself has opened up possibilities for banking, insurance, securities, government, and many more industries.  The other thing I have mentioned is the Smart Contract which is an integral part of making Blockchain so appealing.

Nick Szabo, a legal scholar and cryptographer, realized back in 1994 that a decentralized ledger is an ideal venue for self-executing contracts called “Smart Contracts”.  These contracts allow people to exchange money, property, shares, or anything else, with no need for paying a middleman to affect the transfer.  This can facilitate a virtually frictionless stock exchange, for example.

For example, imagine you want to purchase 1,000 shares of Microsoft at $85 per share (currently at $90) 1 month from today.  You can pay using cryptocurrency and get a receipt in the form of a contract.  The other party deposits the shares in the form of a digital obligation linked to their brokerage account.  The contract is recorded in the Blockchain and on the prescribed day, is automatically executed.  The contract and the transfer of money and shares are automatically recorded in the Blockchain and cannot be changed by anyone without the parties automatically knowing.  There is no middleman extracting a commission for the sale or purchase of the shares.  It is done automatically and securely through the Blockchain.

This has obvious advantages for banking, insurance, financial markets, property transfers, crowdfunding, and a wide variety of other legal processes.  An example of a Smart Contract for crowdfunding your idea can be found here:

This contract allows people to securely pledge money that is only released upon the happening of a specified event (a date arrives, or a product is shipped, for example).  A curated list of projects built on Ethereum can be found here:

Smart Contracts are the meat in the Blockchain stew.  They are what makes the distributed ledger dynamic.  They are not, however, without their own problems.  A bug in the code of a Smart Contract can create havoc, for instance.  Also, because of the anonymity afforded by Blockchain systems and their accompanying cryptocurrency, regulation and taxation become very difficult.  Finally, what if, in my example involving Microsoft shares, the shares are transferred but come with a lien attached?  The contract executes no matter what and you are left trying to clean up a mess.

These problems are not insurmountable and are being worked on by many dedicate geeks.  The potential for major disruption of a variety of industries will keep thousands of people excited and working hard to be the first to bring the next great thing to market.

For a more comprehensive overview of Smart Contracts, their components, building and implementing them, here is a good article:



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