14 May 2016

'Smart contracts' and the Blockchain

From This Way Up, 1:30 pm on 14 May 2016
Smart Contact using Blockchain technology

Smart Contact using Blockchain technology Photo: (You Tube screenshot)

2008 was the year the world's financial systems went into meltdown, wiping trillions of dollars off the global economy. In November that year Satoshi Nakamoto published a paper on a new peer-to-peer electronic cryptocurrency called Bitcoin. A cryptocurrency is a way of transferring value electronically, independent of any bank or financial institution. It's powered by the crowd of users so no intermediaries, agents or middlemen usually mean minimal fees.

At the heart of a cryptocurrency is the blockchain, an idea that's getting lots of hype at the moment. The easiest way to think of a blockchain is as a big list, a digital ledger that records transactions which are stored in secure blocks.  This database is distributed, so there are copies throughout the network of users, and this distribution means that no single person or organisation controls it.

According to the Wall Street Journal, more than 40 top financial institutions and a growing number of businesses are experimenting with blockchains as a way of doing business. Here in New Zealand Kiwibank and the NZX are among those businesses looking at how they can use it too.

The real value of bitcoin and crypto currency technology - The Blockchain explained

The real value of bitcoin and crypto currency technology - The Blockchain explained Photo: (You Tube screenshot)

Now the blockchain is being used to not only record transactions, but other information as well in so-called 'smart contracts'. A smart contract is a set of instructions written in code and stored on the blockchain.

Ethereum is one platform for creating and recording these smart contracts and Mark Pascall is organising a conference called 'Understanding the Blockchain, Smart Contracts and Ethereum' in Auckland on Tuesday 17 May and in Wellington on Thursday 19 May.

Mark Pascall blog article

"If two people can easily agree and create a set of rules..[and]...we also agree to put those rules (a smart contract) on this immutable system that we both trust (the blockchain) then we have created a transaction between two untrusted parties without a intermediary.  The same concepts could apply in theory to a will, a loan, a mortgage, a Trade Me/eBay purchase, an Uber trip.  The list is endless and implications are huge. If you think about it most of our global financial/commerce system and government is made up of centralised intermediary organisations who are performing these transactions on our behalf."- Mark Pascall