Smart Contracts, Part 3: Standardisation

This is part 3 of a 3-part series on smart contracts — if you missed it check out part 1: The State of Security and part 2: The Legality.

Smart contracts have a long way to go before we will see mass adoption. Developers need to solve issues of scaling, security, legality and, increasingly importantly, standardisation.

According to research by Capgemini Consulting, mainstream adoption of smart contracts won’t take place until at least 2020. The reasons are numerous: scaling, security (part 1 of this series), legality (part 2) and, according to some, standardisation — the focus of our final instalment.

Standards act as established rules serving entire industries. They are, arguably, a vital missing ingredient for the broad-scale adoption of smart contracts. However, as the development of blockchain technology speeds along, questions about standards will become harder to ignore.

Ideally, all the big players would come together to create a clearly defined set of common sense standards for smart contracts to serve each subset of an industry. In reality, much of the development has been haphazard, and there is the potential that companies — and, by extension, users — could miss out on the full benefits of blockchain solutions.

“Ethereum’s ERC-20 has emerged as something of a de facto standard, but it has its shortcomings and has not been widely used outside of token issuance and ICO purposes.”

Ethereum’s ERC-20 has emerged as something of a de facto standard, but it has its shortcomings and has not been widely used outside of token issuance and ICO purposes. There is little disagreement about the need for improved standards, but there is a divergence of opinion when it comes to the scale and urgency of the issue.

The Ground Floor

As an integral part of blockchain systems, smart contracts face all the same adoption challenges as the technology at large. These include but aren’t limited to interoperability, user experience, scaling, societal buy-in, governance, energy consumption, the need for digital identities, privacy issues and a deficit of capable developers.

To date, smart contract usage has been relatively limited but, as time passes, a diverse range of industry use cases are set to come into being. In the future, we’re likely to see smart contracts that address all kinds of commercial situations. Some may be simple, but as blockchain gains traction among enterprises, others will be more complex and address a variety of business or individual needs.

The Case for Standards

Standards are needed to open the door to new ways of conducting business that, previously, were unimaginable. The types of smart contract protocols currently in use vary widely — essentially, everyone has their own rulebook.

If output standards aren’t carefully considered from the start, we could end up with a tangled mess of smart contracts. Interoperability, along with a number of other factors, will suffer as a result.

“Some companies are leveraging GS1 standards for use in supply chains. Ethereum has its famous ERC-20 (and the long-awaited ERC-777), but beyond that, there is a good deal of ad hoc development going on.”

Some companies are leveraging GS1 standards for use in supply chains. Ethereum has its famous ERC-20 (and the long-awaited ERC-777), but beyond that, there is a good deal of ad hoc development going on. When everyone is following their own rules or a variation of them, the value of having common standards gets lost.

Samantha Radocchia, blockchain entrepreneur and co-founder of Chronicled, described that value as “a way of organising people or companies around a common understanding. Standards provide the basis for growth and cooperation, which can help an entire industry, not just an individual enterprise.”

Radocchia contends that, if mass adoption is to be achieved, a single set of standards is needed. “It’s unrealistic to expect the large differences in blockchain architecture stacks to converge on a common architecture design in the near future,” she says. “So, this leads us to a pragmatic approach of, instead, developing process standards to ride on top of those different stacks — clearly defined common processes to run on each different platform.”

“Real growth and large-scale adoption are going to require an airtight and standardised system for executing contracts between companies the massive number of custom smart contracts being used is an impediment to growth.”

So the theory goes: if technologists are using smart contracts to implement solutions in billion dollar industries, a disorganised system won’t be adopted. “Real growth and large-scale adoption are going to require an airtight and standardised system for executing contracts between companies,” Radocchia concludes. “The blockchain industry is reaching a point where the massive number of custom smart contracts being used is an impediment to growth.”

Jason Teutsch, PhD in mathematics and founder of TrueBit, agrees and takes things a step further. “Yes! I predict that WebAssembly will play an important role in standardising blockchain interfaces and architecture,” he says. “Compatibility standards may also help to propagate TrueBit and other Layer-2 solutions across the blockchain ecosystem, as may additional tooling — the likes of Transmute, for instance.”

“WebAssembly will play an important role in standardising blockchain interfaces and architecture.”

This general line of thinking makes sense when you consider a smart contract-coordinated package delivery system within a retail company, for example. The package delivery process involves multiple parties — the retailer, the logistics provider and the recipient — and when you map it out in a smart contract, the need for standards quickly become apparent.

The smart contract is going to be different for every business. This could generate hundreds of smart contracts that may or may not be related. While that may work for one company in one situation, it’s not an efficient or scalable solution.

Differing Opinions

Not everyone sees things in the same light, however. Ask Olivier Rikken, director of blockchain and smart contracts at blockchain consultancy AXVECO, and you get an entirely different perspective.

“I don’t agree with this characterisation,” he says. “This is because the amount of custom smart contracts is still relatively low and adoption will start with relatively few customised, mass-copyable smart contracts. With regard to the number of transactions needed for this, I don’t think we’ve reached the limits yet. Besides that, the industry is working on various scaling solutions. One can compare this to the growth of real, usable use cases at the beginning of the internet era.”

“Adoption will start with relatively few customised, mass-copyable smart contracts. With regard to the number of transactions needed for this, I don’t think we’ve reached the limits yet… [and] the industry is working on various scaling solutions.”

Although Rikken doesn’t see standards as such an imminent obstacle on the path to adoption, he added a few caveats — primarily, that it’s important to remember just how nascent this technology is. “The industry is still in an early stage and many technical hurdles still need to be further developed,” he says.

“Also, the maturity of smart-contract developers will have to reach new levels as, in many cases at the moment, proper governance, risk, compliance and privacy are poorly thought through in blockchain implementations.

Inherent Risks

Smart contracts need to be safe, secure, transparent and capable of automating processes and reducing human error. The real challenge in all of this may be the high-level decisions that go into creating standards — that is, knowing not only when to create standards but also which ones to create, because they are never without risks.

We spoke with the CTO of Aragon One, Jorge Izquierdo. “Creating a standard with wrong assumptions about how it will be used can be very problematic, especially if the standard becomes popular,” he tells us. “This is especially painful with smart contracts that cannot be changed once created unless a mechanism for this has been specifically built and thought of before deployment.

“Not everything that can be done in a smart contract needs to be standardised.”

“Not everything that can be done in a smart contract needs to be standardised. Only interfaces that will be commonly used, such as tokens or staking (ERC-900), so other contracts, or off-chain infrastructures, such as wallets or block explorers, can interact with these types of contracts without needing custom logic for supporting every implementation.”

The Oracle Problem

Another critical issue is that for a smart contract to work in the real world, it must interact with real-world data and, as it turns out, representing this data in an exact digital form is tricky. For real world data to be reliable, it has to come from a trusted source or ‘oracle’.

Who decides if an oracle can be trusted? Who audits it? Who audits the auditor of the oracle? There aren’t necessarily good or straightforward answers to these questions — at least not yet.

Until we can come up with a set of standards or a way to ensure trustless oracles, smart contracts are unlikely to fulfil their full potential as trustless contracts. Some also argue that these oracles are one of the most crucial innovation needs of 2019.

Final Thoughts

Smart contract development is coming up against some real issues. The developer pool is relatively small, and even some big name projects are struggling to recruit. Knowledge of Solidity remains niche, and although there are plenty of Ethereum alternatives that offer smart contracts in C#, JavaScript, Python, and so on, none have gained significant traction.

“Standards can help developers working in the siloed environment of one chain who will eventually need to work in a multi-chain environment.”

With this diversity of languages, the standardisation of smart-contract protocols will likely prove vital if they are to proliferate and become smarter. Regardless of how pressing an issue standardisation is right now, it’s clear that standards can help developers working in the siloed environment of one chain who will eventually need to work in a multi-chain environment.

In the future, there will be a need for more development guidelines for smart contracts. The good news is that help is on the way, as a growing number of industry participants are working to enable cross-blockchain transactions, interconnectivity, and standardisation.

“There will be a need for more development guidelines for smart contracts.”

Ultimately, we may be at a phase where there are many different proprietary smart contracts — an experimental stage with many iterations in search of what works best. But without some organisation, these initial rules will likely lead to interoperability issues. For massive-scale adoption, standards will have their role to play.

Getting Closer

The first provably secure, decentralised Oracle network may well have already been created. The ability to link smart contracts directly and functionally with real-world events is one of the biggest hurdles the technology faces, one that researchers and developers at Cornell’s Initiative for Cryptocurrencies and Contracts may well have solved.

The team have developed Town Crier, which they describe as a “high-trust bridge” between the Ethereum blockchain and HTTPS-enabled online data sources. It receives instructions from smart contracts, goes to the web to find the results, and relays those results back to the blockchain. Now, a startup called Chainlink has partnered with Town Crier to build out the technology and ensure complete and infallible decentralisation to satisfy the blockchain community. We may not have fully functioning smart contracts yet, but we’re getting there.

This article has been created by Colin Adams of The Research Institute.

The field of emerging technologies is by no means bereft of ideas or inspiration; however, these alone do not equate to innovation neither do they drive technological advancement — quality Research and Development does. The Research Institute takes a practical approach to technological development and seeks to redress the balance between ideas and viable solutions.

Illustrations by Kseniya Forbender