Why do smart contracts matter?
Smart contracts are building blocks. Learning smart contracts is the best choice in a bear market
Gong xi fa cai!
恭喜發財
It is the greeting phrase during the Chinese New year. The literal translation for that is “congratulating on becoming rich.” Many people get involved in crypto to get rich, including me, so I think it is appropriate to say “Gong xi fa cai”, even if you don’t celebrate the Lunar New Year.
The only way I know we can become rich is to provide value. To provide value in DeFi and web3 as a community member, I must understand their languages. And Solidity in smart contracts is like English in business: you can get by without it, but you would gain a considerable advantage if you have a good command of it.
At a glance:
Featured: Why do smart contracts matter?
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TL; DR: The smart contract is the obstacle that prevents people from understanding or participating in web3/crypto/DeFi/DAO, along with my decision to learn Solidity. Next, I wrote a short introduction to smart contracts and legal contracts, and finally, I share my take on how smart contracts connect and impact our lives.
Although there is a wide diversity in web3/crypto community users, the smart contract is the obstacle that prevents people from understanding or participating in web3/crypto/DeFi/DAO, especially those who don’t have a tech background. So I began learning Solidity and completed the introductory Solidity course by WTF Academy, a Web3 open-source university that recently received funds from the Ethereum Foundation.
On a side note, I was hesitant about which smart contract programming languages I should learn, or even maybe I should wait until there is a mature smart contract ecosystem. Despite its current dominant position in DeFi projects, Solidity may still be replaced by other alternatives. That being said, it is cost-effective because there are abundant learning materials for Solidity. Also, learning Solidity now gives me a head start with a deeper understanding of smart contract protocols and puts me in a better position when I begin to learn a new smart contract language in the future.
Feel free to reach out to me or leave your thoughts on Solidity or other smart contract languages in the comments.
What are legal contracts and smart contracts?
It seems daunting to read or draft a legal or smart contract. However, all of us can benefit from understanding the mechanism of legal contracts or smart contracts. The essence is that you can at least have a meaningful discussion with your attorneys or engineers when you need a legal or smart contract.
Many writings on smart contracts refer to vending machines as a smart contract prototype or an example. You select your beverage, insert the corresponding amount of coins, and get the beverage of your choice. You don’t need a written or oral contract with the vending machine company, although you may establish an implied contractual relationship. For detailed information on smart contracts, you can visit Investopedia, IBM, and Ethereum Foundation.
For brevity, let’s take a look at one definition for each. First, the legal contract is “an agreement between two or parties creating obligations that are enforceable or otherwise recognizable at law” (“contract” Black’s Law Dictionary).
The key to the legal contract definition is “enforceable” or “recognizable at law.” In common law jurisdictions, a valid contract generally requires an offer (I want to pay $2,000 for your laptop), acceptance (explicit “Yes” or by performance if the offeror prefers), and consideration (a bargained-for exchange, i.e., $2,000 and the laptop).
Secondly, “a smart contract is a secure and unstoppable computer program representing an agreement that is automatically executable and enforceable.” (Mastering Blockchain - Fourth Edition By Imran Bashir, early access edition)
Its secure feature is the product of decentralization and cryptography, which I will cover in future Briefs. The magic phrase for the smart contract’s definition here is “automatically executable and enforceable.” Different from legal contracts, the enforcement of which requires government intervention, smart contracts will be automatically enforced or triggered when conditions are met.
However, smart contracts can also be designed as legal contracts as well. In November 2021, the Law Commission, an independent agent for legislation consultation in England and Wales, concluded that “the current legal framework in England and Wales is clearly able to facilitate and support the use of smart legal contracts, without the need for statutory law reform.” In its report, it presents three forms of smart legal contracts: (1) “natural language contract with automated performance”, (2) “hybrid smart contract”, and (3) “solely code contract.” The main difference is whether the contracting parties use natural language for the terms of their contracts.
You can find relevant ongoing consultations (such as digital assets and choice of law) from the Law Commission here.
Opportunities in disguise: how smart contracts (will) connect and impact our life:
Smart contracts remain irrelevant to most people outside of the crypto world, for now. Because smart contracts do not have access to external data, they have to request a third-party entity or service called “blockchain oracle” for external data. For example, if you and I decide to bet on tomorrow’s weather using smart contracts, we can deploy a smart contract in which we place a bet of 100 ethers. We would then negotiate and decide which weather reporting system (oracle) we rely on. The smart contract will call for weather information via the specific oracle at the agreed, appointed time. The oracle will send the weather condition back to the smart contract, which will automatically enforce our deal and pick the winner.
In addition to the oracle, smart contracts will connect our life via tokenization and stablecoins. My prediction is that the tokenization of assets, like the securitization of assets, will be a powerful tool in matured economies, especially those embracing the free market. Once our off-chain assets (for example, your house) are tokenized and recognized by the court of law, we will substantially reduce transactional costs and increase our asset allocation autonomy.
Smart contracts are the essence of DAO in facilitating bottom-up governance and participation. For me, learning Solidity is like learning Latin to participate in Roman Senate meetings in Roman Empire. But it is even better—you don’t need Roman citizenship to speak up or vote on proposals.
I don’t imagine a wholly coded utopia in the future. Instead, it is a blended world in which crypto is invisible, like electricity in the modern world. A legal professional (not necessarily a lawyer—it could be a legal engineer) who understands black letter laws and computer codes can better serve society. It will be, if not already is, a valuable skill to translate business contracts into smart contracts, while keeping the enforceability in the eyes of the court of law.
The new world of smart contracts will likely cause additional problems, such as privacy concerns and soliciting illegal activities. If we want to show that the benefits of smart contracts outweigh their harms, we have to address these issues——that’s how we can build a better community together.
Disclaimer: Not legal advice. You can see the full disclaimer & disclosure here.
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What is the biggest threshold or obstacle that prevents people from appreciating your profession or expertise?