Ethereum (ETH)

To understand what a smart contract is, let’s understand what Nick Szabo visualized in 1994, long before the creation of Bitcoin, the first popular cryptocurrency. Nick, a cryptographer and legal scholar was working on the concept of contracts that would self-execute without a third-party intervention. He imagined running this on top of a Distributed Ledger. And this concept was introduced to the world as a smart contract.

Just as the name suggests, it is a contract that is smart - self executes without any dependency. In technical terms, it’s a bunch of code that digitally verifies and facilitates the execution of a contract between two parties without any involvement of a third. It doesn’t function in silos, it’s execution is governed by a network of computers that run on the Ethereum Network. These network computers are referred to as nodes.

A smart contract can be used for any application that involves the signing or exchange of an agreement between the two parties. Transactions are executed once the predefined conditions are met and this makes smart contracts an effective tool for resolving conflict that arises from oversight over terms of negotiation, or non execution of contract even after payment has been made and may such scenarios. It is the best solution for conflict-free transactions between two parties. While the smart contract does the execution, the terms of execution are entirely defined and set by the involved parties.

Smart contracts almost make magic happen. In an economy where there are agreements between parties in almost every field - insurance, real estate, education, service providers, governments and financial services, there is a lack of trust and transparency. Both parties are hesitant to make the first move and this may hurt the execution of the deed or contract. Smart contracts solve this problem with the help of technology that is unbiased.

I’ll consider the example of the sale of a condo. Currently there is a long procedure followed by the two parties involved and it can get time consuming. However, the end result is the same even when a smart contract is involved, only the cost involved and time taken is relatively less. Scenarios in which real estate is bought/sold, there is an involvement if escrow. However, with the help of a smart contract this could be eliminated, and that obviously means a huge saving for both involved parties. A smart contract with predetermined conditions (in this case - on receiving money in Seller’s Account, initiate name transfer, generate certificate and dispatch to new owner/buyer) would make the process trustless and cheaper. Thus, both the parties exchange funds and receive the asset without the involvement of a third party.

Eliminating intermediaries slashes the cost in deals that amount to hundreds or thousands of USD. Smart contracts also facilitate part disbursal of funds/ asset as conditions are met. This helps to have better transparency in the workflow and creates trust, that didn’t exist previously.

The salient features of smart contracts are that they are backed by powerful - Blockchain Technology, they are trustless and they eliminate the dependency on an intermediary, they are accurate, autonomous and they enable fast execution of deeds.

Now that we know what are smart contracts and how they function, let’s discuss the most anticipated update in the Ethereum Blockchain - ETH 2.0

While Ethereum has been known for its tech innovation, facilitation of blockchain projects and an active and kicking DApp ecosystem, much has been said about its fundamental technology, the consensus mechanism used and its inability to scale. Vitalik has been discussing solutions to these problems with developers across the world at conferences and hackathons. We have heard him speak in bits and pieces and witnessed him put together a concrete plan for ETH 2.0. There have been several issues with mining, security and its PoS solutions, sharding, Plasma and much more. Most of these potential updates are coming bundled together as ETH 2.0. Ethereum’s launch in 2015 was to be rolled out in 4 stages - Frontier, Homestead, Metropolis and Serenity. We have covered Metropolis that included the roll-out of Byzantium and Constantinople.

Let’s discuss the roll-out of the new update feature by feature. We start with sharding. Sharding is basically the splitting of a large database in smaller and more manageable ones that would be distributed across the Ethereum Network. This would address deep issues like scalability and the speed of transactions on the network.

eWASM would again, increase the speed of execution of transactions and increase overall speed of the network. In technical terms, it enhances the coding capabilities of the Ethereum Virtual Machine.

Plasma protocol is basically a layer that would be added on top of the existing network and its functioning is similar to Bitcoin’s lightning protocol. Transactions would be off chain and then settlement would be made once a day or so, on the Ethereum network, thus reducing the number of actual transactions on the network and reducing the load on the database and network, enhancing speed and scalability. Raiden is another off chain solution, very closely related to Plasma. Serenity is basically creating a PoS chain for the Ethereum Network and solving the technical challenges that the network faces currently. It is poised to increase the speed and power the network at least by 100 percent.

While these exciting updates are already underway, the timeline is not fixed and we may see a roll-out that starts in 2020 and goes into 2021. However, Ethereum is set to change the way it works and ETH 2.0 will make its way into the crypto world soon enough.