Blockchain & Money: Session 6: Smart Contracts & DApps by M.I.T. Sloan School of Management with Professor Gary Gensler

Session 6: Smart Contracts and DApps

• Session 6 Study Questions:
  • What are smart contracts? How do they compare to traditional contracts? What are tokens?
  • What are smart contract platforms such as Ethereum? What generally distinguishes them from Bitcoin?
  • What are decentralized application (DApps)? What has been the usage and why haven’t any DApps yet received wide consumer adoption?

• Session 6 Readings:
  • Required:
    • “Smart Contracts: 12 Use cases for Business & Beyond”, Chamber of Digital Commerce.
    • “State of the DApps: 5 Observations from Usage Data”, McCann.
    • “Ethereum Competitors: Guide to the Alternative Smart Contract Platforms”, Blockonomi.
  • Optional:
    • “Smart Contracts: Building Blocks for Digital Markets”, Szabo.
    • “A Next-Generation Smart Contract & Decentralized Application Platform”, Ethereum.
    • “Blockchain Technology as a Regulatory Technology”, De Filippi & Hassan.

Overview: Review of Course Projects; Smart Contracts; Blockchain Design with Smart Contracts; DApps and Token Sales; Legal Issues of Smart Contracts; Conclusions.

Smart Contracts

• “A set of promises, specified in digital form, including protocols within which the parties perform on these promises.” –Nick Szabo, 1996.
• However…
  • Smart Contracts may not be ‘Smart’, but rather ‘dumb’ contracts. (Smart here does NOT imply the use of A.I.!!)
  • Smart Contracts may not be ‘Contracts’

• Bitcoin vs. Ethereum Design:
  • Founder: Satoshi Nakamoto vs. Vatalik 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 (Balance)
  • 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: SHA256 vs. Ethash
  • 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.

• Smart Contract Platforms
  • Ethereum (2015)–$22 billion current market value (2018)
  • EOS (2018)–$5 billion–completed $4.2 billion year long ICO in July (2018)
  • Neo (2016)–$1.1 billion–China; delegated BFT; supports wider range of code
  • Ethereum Classic (2016)–$1.1 billion; Created from the ‘DAO’ hard fork
  • LISK (2016)–$360 million–code in Java; uses side chains
  • Stratis (2017)–$150 million

• Smart Contract Potential Use Cases (Digital Chamber of Commerce 12/16):
  • Digital Identity
  • Records
  • Securities
  • Trade Finance
  • Derivatives
  • Financial Data
  • Mortages
  • Land Title
  • Supply Chain
  • Auto Insurance
  • Clinical Trials
  • Cancer Research

• 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.

• 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 centralized
  • Promoters allocate themselves ‘premined’ tokens
  • Tokens are fungible & transferable
  • Scarcity is fostered with preset ‘Monetary policy’
  • Purchasers anticipate profits through appreciation

• Conclusions:
  • Nakamoto’s P2P Money —> 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

Biblio:

Video: https://ocw.mit.edu/courses/sloan-school-of-management/15-s12-blockchain-and-money-fall-2018/video-lectures/session-6-smart-contracts-and-dapps