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The computer scientist Nick Szabo introduced the concept of "Smart Contracts" as far back as 1994. In a paper published in the magazine Extropy in 1996, Szabo defined these contracts as "computer protocols that facilitate, verify, or enforce the negotiation or the execution of a contract, sometimes allowing the partial or total exclusion of a contractual clause, thus simulating the logic of the contractual clauses. "As pointed out by Szabo himself, the etymology of the word ‘smart contract’ should however be redefined, as it expresses a concept closer to a legal contract than to what it actually is – a program based on the IFTTT paradigm (IF THIS, THEN THAT), written on blockchain, and with an automatic and immediate activation.
To have a better idea of how Smart Contracts work, just think about the multitudes of automations that already take place in the real world: the release of an insurance clause, the request for a product that is out of stock on a shelf, the payment of a salary, or the interactions with tools external to the digital world, such as the Internet Of Things (IoT). In computer science, IFTTT is a type of programming based on one-to-one choices in which a single event generates a concatenation of previously established reactions. Through this paradigm, the smart contract protocol breaks down any possible human negligence or wickedness and significantly reduces the cost and time usually spent on paperwork. In fact, while in the practical world clauses can be interpreted and written contracts can be exposed to ambiguities, in a smart contract everything is defined in an atomic way: either black or white, true or false.
Ethereum, The DAO and the first Smart Contracts
The DAO was a Decentralized Autonomus Organization that went down in history as one of the most important venture capital funds of the golden age of ICOs (Initial Coin Offerings). The launch of The DAO took place in 2016, after an extraordinary crowdfunding campaign via token sale that allowed the organization to raise, in just a few days, as much as 1.27 billion dollars. Staggering numbers, if one considers that in 2015 crowdfunding moved 34 billion USD, while venture capital moved about 127 billion USD. Unfortunately, that sea of ICOs was soon flooded with frauds and bankruptcy companies that, by taking advantage of the lack of transparency of the projects, were either insolvent or declared default. The DAO was one of the few organizations that proved to have solid foundations, putting forward a new business model geared towards commercial and non-profit companies.
Initialized on the Ethereum blockchain, The DAO was associated with the DAO token, which was tradable on popular exchanges such as Kraken and Poloniex. The reason why the organization has become known as The DAO is related to the scandal it was involved in. Due to a bug in the writing of the smart contract, a group of hackers managed to crack the contract and generated a loss of 3.6M of Ether – about a third of the entirety of Ethers then present on the platform. It was following this abrupt attack that the current Ethereum blockchain was born. At that time, the community was in fact divided between those who wanted to cancel the attack by modifying the result of the last block, and those who wanted to go on with the original protocol: Ethereum is the chain that continued its initial protocol, while Ethereum Classic was carried out by the team that decided to cancel the attack.
Polygon, Cardano and Solana: the Smart Era
Over time, smart contracts have become a fundamental element for the development of DApps and DeFi. For this reason, other blockchains aside from Ethereum have started to implement more streamlined and less expensive protocols that are better suited to withstand the enormous computing demand required.
Polygon, for example, is a Layer-2 chain, i.e. a blockchain that takes the Ethereum blockchain as its basis and creates an interoperable sub-blockchain that instead of burning the Ether token uses its Matic to close the connections between blocks.
Cardano, on the other hand, is a blockchain platform based on the proof-of-stake protocol. Unlike Bitcoin's proof-of-work, this protocol exploits the blocked quantity of ADA (its currency) on the platform to manage Governance and verify transactions. Founded in 2017 by Charles Hoskinson (co-founder of Ethereum), Cardano is currently the most used blockchain platform in the agri-food sector, where it is used to track fresh produce from farms to fork. Other products help instead to ensure security credentials and to block counterfeit goods. In 2021, Cardano officially launched the update that will allow the activation of smart contracts and a compatible EVM machine that will give the possibility to copy existing smart contracts on Ethereum and have them run on its own Virtual Machine. As the Shelley phase of the project kicked off in 2020, Hoskinson commented:
“In 2021 we will face a lot of competition and we will be excited to show what years of research can lead to. To date, we are demonstrating how to do proof-of-stake in the right way"
According to Hoskinson, the Rollup of the Shelley hard fork will bring about a level of decentralization 50 times higher than what current blockchains (such as Bitcoin, Ethereum and other large transaction blockchains), can achieve, bringing with it many projects that are awaiting smart contracts.
Similar projects are also being developed on Solana which, according to coinmarketcap.com, is “the fastest crypto on the block right now”. Currently, Solana can boast a transaction speed of 50,000 TPS, which is only comparable to the VISA system. The revolutionary aspect of SOL's Proof-of-History protocol is that it embeds the timestamp in the transaction records, thus allowing to avoid wasting time for calculations. With an annual growth of +12,600%, Solana is literally dominating the top10 in the market in terms of growth and adoption speed.
Polkadot & Algorand
If Solana is the fastest blockchain of the entire system, Polkadot is undoubtedly the most interoperable. The goal of the development team is in fact to make different blockchains and different protocols able to "talk" to each other through the so-called "parachains". Parachains are blockchains launched in parallel with the main one that have the task of separating the workload, so that each parachain has its precise role and the final data storage task is left to the parent blockchain. Kusama – Polkadot's canary blockchain – will launch the parachain auction before the end of 2021.
Finally, Algorand is known as developers’ favorite blockchain. In fact, its CEO, Silvio Micali (at MIT), has been working hard to make smart contracts accessible to any programming language: Java, C#, Phyton, PHP, Solidity, Serpent etc. The goal is to make the work they do clearer, and to do so Algorand also uses Clarity, a language that aims to make the development process understandable also for those who are not developers.
Why is it so important to study the blockchain today?
Decentralized Finance, Agrifood, Internet of Things, Sharing Economy, Insurance, Art, Gaming. The potential fields of application of the blockchain certainly do not stop here, and it is important to find out new ways to make the use of this technology even more efficient. Aside from this, knowing how the blockchain technology works represents a great advantage in today’s world. For instance, FinTech companies, which have experienced an extremely rapid growth due to the Pandemic, are increasingly looking for people who have skills in this field. Besides, the continuous increase of new cryptocurrencies, tokens, NFTs and blockchain based projects requires an ever-growing number of professionals equipped with the soft and hard skills necessary to work in this field. Since Blockchain technology is rapidly becoming part of our everyday life, this is indeed the right moment to acquire knowledge in this field. Many companies are not yet aware of the true potential that lies behind this technology, nor of the pitfalls that they may encounter by stepping into this world without adequate preparation.
What kind of skills are required to work in this field?
According to many job advertisements, the most requested skills are the following:
- A deep understanding of algorithms, data protection, decentralized technologies and data structures.
- A solid background in programming with at least one of these languages: Python, JavaScript, JAVA, C, C ++.
- A general understanding of ledgers, blockchain and cryptocurrencies.
- Skills in performance management and anomaly detection.
- Basic experience in the creation of blockchain-based applications and frameworks.
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