Technology is getting smarter, that’s no secret. The word “smart” has found itself comfortably situated beside more and more products — smart phones, smart TVs, smart watches, even smart thermostats.
Surprisingly, one of the most important and consequential “smart” technologies today was initially conceptualized in the early 1990s, long before the first iPhone was released, and before Blackberry was even founded. And today it’s a reality, providing an infrastructure that’s become fundamental to the crypto space.
Of course, I’m talking about smart contracts.
What are Smart Contracts?
Smart contracts are self-executing agreements that are coded on a decentralized blockchain network. They define the rules, penalties, and possible outcomes of a contractual agreement, and then execute an outcome based on the data received. In a functional sense, they’re the mechanism by which transactions can occur on blockchains without the need for a trusted third party.
Smart contracts remove the the labor, cost, and risks associated with typical contracts like lawyers, enforcement costs, and the potential for contract breach or fraud. All of these functions mediated or removed by the smart contract itself, as it operates autonomously once deployed.
Put simply, smart contracts replace middle men with software code.
A Real-World Example
An often-cited example that provides the simplest illustration of how a smart contract operates is the functionality of a vending machine.
• The person using the vending machine provides the input — the money required for the desired product as well as the letter and number combination of that product.
• Based on that information, the vending machine provides the output — the chosen product as well as change, if they put in more money than was necessary for the item they purchased.
In this scenario, the rules (D4 = Twix, E6 = Snickers, and so on) and conditions (only release a product if sufficient funds have been deposited) are already programmed into the machine, so no one needs to be there to retrieve your product for you, give you change, or stand guard to make sure you’re not stealing.
Ethereum, DeFi, and Everything Else
Though the concept of smart contracts was first proposed in the early 1990s, Ethereum brought smart contracts to the forefront when it was founded in 2015. In fact, Ethereum was designed to use smart contracts as a fundamental part of its infrastructure (smart contracts define the rules for the decentralized applications, or DApps, that are built on the platform).
Once a smart contract is deployed, it’s not under anyone’s control and thus cannot be tampered with — not even by the person who created it. Users can interact with the smart contract by providing information to perform transactions, which the smart contract then uses to execute functions based on its preprogrammed rules.
Future Use Cases
The scope of smart contract application is still somewhat narrow, especially considering what it could look like in five or ten years. While today smart contracts are used widely in DeFi protocols and to power the NFT market, they soon could be utilized for everything from real estate to insurance to mainstream stock markets.
In addition, a number of institutions are focusing on blockchain- and smart contract-based solutions, including Goldman Sachs, the Australian Securities Exchange, and Barclay’s Corporate Bank. More and more mainstream institutions are waking up to their potential of smart contracts and sensing the shift in direction that’s taking place even in mainstream financial markets.
Risks — and the Associate Solution
Because they function autonomously once deployed, smart contracts are not without their risks. As is often said about contracts in the legal world, they must be “airtight,” as any vulnerabilities in the code can be exploited with disastrous results. This happens more often than many would like to admit, but the more mainstream crypto becomes, the harder it is to ignore.
Unfortunately, hacks are not uncommon. On January 28, hackers stole $80 million from the DeFi protocol Qubit. And just two days ago, the DeFi project Wormhole accounted that it was the victim of a hack worth $320 million.
With the risks of hacks — not to mention password losses, hard drive crashes, and other irreversible events — smart contracts at their current level of accessibility and with their current level of risk simply don’t make sense for most people to use.
Associate gives you the ability to decentralize the management of your organization without these risks. It utilizes a technology similar to smart contracts to automatically execute member decisions.
For example, members can propose a vote to replace an administrator. If this vote passes, the action to remove administrative privileges from that user is executed automatically. Even the administrator, despite their current privileges, cannot overrule the decision or stop the action from being executed.
Associate offers the transformative power of decentralization to everyone without the risk. It’s perfect for collectively operating open-source software, managing internet communities, or funding non-profits. No matter the venture, Associate will only ever step in if something goes wrong — say, to help you recover a password loss, but will never interfere with your association in any way.
While smart contracts will surely continue to evolve over time, you don’t have to wait to benefit from the transformative power of decentralization. You can start your own association today, for free, in less than 5 minutes.
