Article written by Riya Thakur
Central banks complain today that innovation in cryptocurrency is too quick, and business adoption is too fast, for them to prepare their laws and lay down their rules as Moses did from the high mountain.
Cryptocurrencies’ response was to switch innovation to second gear by inching closer towards the implementation of smart contracts. David Zimbeck announced today the beta version of the “first known two-party electronic contracting system anywhere in the world” which he calls Bithalo for the protocol to be used with Bitcoin, Blackhalo for the protocol to be used with Blackcoin and NightTrader, a decentralized exchange. In a press release David Zimbeck stated that:
“Almost every sector of the economy that involves third parties runs the risk of loss to the consumer. This protocol now gives individuals full control over who they decide to trust and how they decide to structure that trust”
“Smart Contracts” is a term coined by Nick Szabo in 1993 to describe a conceptual computer protocol which facilitates, verifies and enforces negotiations and the performance of a contract in the process erasing the need for courts, brokers and other middlemen.
Our society’s solution to the evolutionary problem of cheating has been to create a complex system of laws and regulations enforced by a central authority, which in itself can often be unaccountable, but is generally effective at enforcing relations between two parties where its own interests are not affected. We need therefore to trust a third party, including parliament, the civil service and the courts, to adjudicate independently of their own self-interest.
A Closer Step towards Smart Contracts
A step was taken today in that direction. In a video tutorial preview of the software, the process is shown step by step, from the making of the offer, counter-offer, acceptance, to the transaction being shown on blockchain.
In an e-mail exchange, David Zimbeck explained a simple transaction of say 1 bitcoin or 1 blackcoin for $600. Firstly, the selling party sends the coins to be purchased, plus a deposit, to the escrow. The buying party in return sends only a deposit to the escrow, followed then by the sending of the 600 dollars. Once the dollars are received, both parties will want their deposits back, and the buying party will want the coins. Therefore ensuring that neither has any incentive to default, while the need for an agreement from both parties to release the funds ensures that neither can abscond with the funds.
The Golden Standard
Bithalo, Blackhalo and NightTrader, do not rely exclusive on the inbuilt script system of bitcoin. A complex framework developed by Satoshi Nakamoto, which allows for the creation of complex smart contracts tied to each transaction. Instead it leverages joint accounts and game theory to perform the contract. To better understand scripting, the Bitcoin Scripting Wikipedia page might seem forbidding to someone not well versed in computer science as it lacks any real world examples of ways the script programming language could be used.