Contracts Ex Machina

Smart contracts are self-executing digital transactions using decentralized cryptographic mechanisms for enforcement. They were theorized more than twenty years ago, but the recent development of Bitcoin and blockchain technologies has rekindled excitement about their potential among technologists and industry. Startup companies and major enterprises alike are now developing smart contract solutions for an array of markets, purporting to offer a digital bypass around traditional contract law. For legal scholars, smart contracts pose a significant question: Do smart contracts offer a superior solution to the problems that contract law addresses? In this article, we aim to understand both the potential and the limitations of smart contracts. We conclude that smart contracts offer novel possibilities, may significantly alter the commercial world, and will demand new legal responses. But smart contracts will not displace contract law. Understanding why not brings into focus the essential role of contract law as a remedial institution. In this way, smart contracts actually illuminate the role of contract law more than they obviate it

On the Feasibility of Decentralized Derivatives Markets

In this paper, we present Velocity, a decentralized market deployed on Ethereum for trading a custom type of derivative option. To enable the smart contract to work, we also implement a price fetching tool called PriceGeth. We present this as a case study, noting challenges in development of the system that might be of independent interest to whose working on smart contract implementations. We also apply recent academic results on the security of the Solidity smart contract language in validating our codes security. Finally, we discuss more generally the use of smart contracts in modelling financial derivatives.Comment: 15 pages, 1st Workshop on Trusted Smart Contracts In Association with Financial Cryptography 17 April 07, 201

An Alternative Paradigm for Developing and Pricing Storage on Smart Contract Platforms

Smart contract platforms facilitate the development of important and diverse distributed applications in a simple manner. This simplicity stems from the inherent utility of employing the state of smart contracts to store, query and verify the validity of application data. In Ethereum, data storage incurs an underpriced, non-recurring, predefined fee. Furthermore, as there is no incentive for freeing or minimizing the state of smart contracts, Ethereum is faced with a tragedy of the commons problem with regards to its monotonically increasing state. This issue, if left unchecked, may lead to centralization and directly impact Ethereum's security and longevity. In this work, we introduce an alternative paradigm for developing smart contracts in which their state is of constant size and facilitates the verification of application data that are stored to and queried from an external, potentially unreliable, storage network. This approach is relevant for a wide range of applications, such as any key-value store. We evaluate our approach by adapting the most widely deployed standard for fungible tokens, i.e., the ERC20 token standard. We show that Ethereum's current cost model penalizes our approach, even though it minimizes the overhead to Ethereum's state and aligns well with Ethereum's future. We address Ethereum's monotonically increasing state in a two-fold manner. First, we introduce recurring fees that are proportional to the state of smart contracts and adjustable by the miners that maintain the network. Second, we propose a scheme where the cost of storage-related operations reflects the effort that miners have to expend to execute them. Lastly, we show that under such a pricing scheme that encourages economy in the state consumed by smart contracts, our ERC20 token adaptation reduces the incurred transaction fees by up to an order of magnitude.Comment: 6 pages, 2 figures, DAPPCON 201