The article points out that you can't construct an ordinary loan on chain, because you have no way to enforce paying it back short of tying up the loaned funds tor the duration of the loan. Useful credit fundamentally requires some way of making debtors pay up later. It's possible to construct various speculative financial products entirely on chain, and that's been done, but it's mostly useful for gambling, broadly defined.
Matt Taibbi's recent book The Divide has a chapter on the abuses of our credit collections system. People are getting taken to court of debts they never actually owed in the first place, or already paid off. The lender has sold the loan to someone else, the records are lost, the borrower get "served" at an old address and never actually hears about the case, then loses to a default judgement for not showing up at court...and finds out about it when wages are garnished.
Here's a simple idea I came up with to fix that:
It still uses the courts to enforce payment, but it uses the public blockchain to stop this nonsense about lost records and fraudulent attestations that they exist, while still protecting borrower privacy.
Often fighting these loans is as simple as asking the owner to show proof of the loans in court, at which point they often evaporate, however it can be a long winding road to get there and often people just don't show up in court, or don't know, and get judgements against them that they might not otherwise owe. If the debt status was easily verifiable, it would be better for all sides (other than the bad actors) when it ends up in court.
If the blockchain isn't enforcing payback, then it's just a normal transfer of money from one party to another. There's no smart contract needed.
Can you provide an example of this?
* if it's a one off payment to all recipients, why not just send it manually?
* what happens when you need to add or remove recipients? Compared to just phoning up the bank to amend a standing order.
* what happens if you accidentally pay someone the wrong amount?
* what happens if you lose your wallet and you can't continue paying?
I would rather have a bank handle all of the edge cases and provide the consumer protections I want out of a payments/account system than some random script that I (or someone I have to pay) has to maintain that could be responsible for vast amounts of funds.
I wrote a program to help me do this with my student loans, that does sound useful.
That all said, a blockchain is not really required. Better standards and a trusted third party would do fine.
I would observe, though, that the word "trust" here does not mean universal trust. Two signatories to a contract may agree to trust a given oracle without affecting anyone else on the blockchain, or trust a combination of oracles, or etc. etc. If the trusted service is simply pushing "the price of tea in China" into the blockchain, then the blockchain may still be doing "real work" for your contract which involves other things.
"Decentralization" doesn't mean that every single contract won't ever use a central authority. It means there's no mandated one.
You mean the way people should trust their governments.
"Paul Kagame re-elected president with 99% of vote in Rwanda election"
Quoting my own comments from a while back:
> The vast majority of contracts do not have syntactically testable conditions. They just don't. Whether the conditions in a contract have been met is very often a matter of huge debate - this is what "law suits" are about. Unless you can create a condition that is testable by code, you cannot have a contract that self-enforces with the block chain. The conditions set forth in contracts are extremely complex and reasonable people can differ. I cannot imagine how you would have a contract be triggered on the insolvency of a privately held corporation - good luck defining insolvency and good luck getting access to the underlying books. Copyright infringement is also a preposterous idea - the amount of semantic judgment that must be made to determine if a work is infringing is enormous. Only the very simplest of conditions - comparing numbers, checking the time, can be reliably automated, and if you are getting a lawyer to write your contracts, odds are there is substantially more complexity in the agreements than this, which is why you hired the lawyer in the first place. In addition, a fair portion of contracts that can actually be set up to work this already are - and the blockchain is not necessary. They are things like credit cards and they work pretty good without the blockchain.
I've often found that for quite a few applications, the cost of executing the contract on a blockchain outweigh the benefits of decentralisation.
Entity E verified by certificate C said statement S on date D
To me, this seems to form enough of a trust network to enable injecting external world data into blockchains, with certificate authorities as the linchpins.
Appreciate if any security folks here can take this apart and explain/validate/trash in detail.
"If the funds used for coupon payments are controlled by the bond's smart contract, then those payments can indeed be guaranteed. But this also means those funds cannot be used by the bond issuer for anything else. And if those funds aren’t under the control of the smart contract, then there is no way in which payment can be guaranteed.
In other words, a smart bond is either pointless for the issuer, or pointless for the investor."
There really is no problem, unless you have unrealistic expectations as to what a blockchain can do.
There’s essentially no difference between lending a company money, with which it purchases machinery, and lending this machinery directly to the company. Believing a blockchain can ensure that when I lend you my car (a form of machinery) I will get it back without a scratch, is simply unreasonable.
I expect an on-blockchain contract would have to allow for default (which I suppose it could, given a way to signal external events.) Currently, of course, this is handled through negotiation, arbitration, or ultimately the bankruptcy courts. It would certainly seem unrealistic to expect that to be replaced by smart contracts anytime soon.
But I was trying to convey the fact that money is just a replacement for physical goods, such that if the lender doesn’t purchase something with the lent funds, the loan would be meaningless. And as soon as the lender spends the lent funds, there’s a risk that it won’t be able to recover this cost. In other words, riskless credit makes no sense, since the presence of risk is why there’s a potential return for the lender in the first place.
Legally speaking, a contract is merely a promise enforceable in court.
>1. Contacting external services
..Often, the first use case proposed is a smart contract that changes its behavior in response to some external event. For example, an agricultural insurance policy which pays out conditionally based on the quantity of rainfall in a given month.
The imagined process goes something like this: The smart contract waits until the predetermined time, retrieves the weather report from an external service and behaves appropriately based on the data received.
This all sounds simple enough, but it’s also impossible. Why? Because a blockchain is a consensus-based system, meaning that it only works if every node reaches an identical state after processing every transaction and block.
>3. Hiding confidential data
..Because even if one smart contract can’t read another’s data, that data is still stored on every single node in the chain. For each blockchain participant, it’s in the memory or disk of a system which that participant completely controls. And there’s nothing to stop them reading the information from their own system, if and when they choose to do so.