One of the most important developments in finance during the past decade is the introduction of the digital currency Bitcoin. Limited in supply and currently considered slightly more stable than gold, Bitcoin allows for anonymous, instantaneous, secure, and publically accountable transactions.
Its uses range from a means of protecting investments against inflation to a means of conducting criminal transactions anonymously. The foundation of Bitcoin is Blockchain, a distributed database that is used for other cryptocurrencies and is driving the revolution in digitally based smart contracts that use SaaS to trigger shipping, delivery, and other actions in response to triggers like payment, a development that will make the painstaking work of contract lifecycle management almost effortless.
This massive change in contracting will require coordination from numerous participants across a number of industries, but two giants steps have been recently made toward this revolution. Earlier this month, Hyperledger announced Hyperledger Fabric 1.0 is ready for release, and the Accord Project, a consortium working with the Hyperledger project to advance smart contracts, was launched earlier this week.
So what is Hyperledger and how will it facilitate the development of smart contracts? To get a sense of Hyperledger’s core technology and its potential to change global commerce, it’s important to first take a close look at Blockchain and Ethereum, another computing platform for creating smart contracts with Blockchain.
Blockchain is a distributed database for maintaining records, or blocks, that are timestamped and linked to other blocks, where no single block can be modified without modifications to all blocks in the chain. Blockchain initially gained notoriety as a core component of the digital currency Bitcoin. The use of Blockchain provided Bitcoin an advantage over other types of digital currency by preventing users from spending money twice, without the need for an outside authority to monitor and intervene.
In addition to solving the “double spending” problem of digital currency, Blockchain presents a host of other possibilities as a global infrastructure. Blockchain transactions are permanent and verifiable, and can be programmed to trigger automatic transactions, all without the need for a middle man or the possibility of third-party interference. This makes Blockchain extremely attractive as a foundation for other types of platforms, including Hyperledger, and Ethereum, another open-sourced computing platform that can be used to create smart contracts.
Ethereum is a public distributed computing platform with smart contract functionality that provides an Ethereum Virtual Machine (EVM) for the execution of scripts on a network of nodes. Like Bitcoin, Ethereum provides a cryptocurrency called “ether” that can be transferred between the accounts of various participants. Unlike Bitcoin, Ethereum uses a different Blockchain protocol with a scripting language so it can be used for building decentralized apps. The cryptocurrency ether is used by developers building apps on ethereum to incentivize the creation of quality applications and a healthy network, or by clients utilizing Ethereum’s smart contracts.
Although Ethereum is, like Hyperledger, used for the creation and execution of smart contracts, Ethereum is not so much a competitor of Hyperledger, but a collaborator that may be used in tandem with Hyperledger. Such is the case with the Hyperledger framework Burrow, which provides developers the option of integrating an Ethereum Virtual Machine into their platforms.
Until the release of Hyperledger Fabric 1.0, Ethereum is the only real-world smart contract supporting Blockchain. With the imminent release of Hyperledger Fabric 1.0, however, another framework that provides a modular, scalable, and secure foundation for developing Blockchain applications will become available.
Hyperledger uses container technology to host smart contracts. With Hyperledger, users are coupled into three different roles: endorser, committer, and consenter. This allows various users to engage in private transactions that require validation or information sharing from other parties, allowing, for example, contractors to set different prices for different companies, rather than forcing all information to pass through a centralized authority.
Ethereum Alliance and Accord Project
In order to develop industry standards for Ethereum, the Ethereum Alliance has been formed, connecting enterprises and academics with ethereum experts. Among the goals of the Ethereum Alliance are improving the privacy and performance of Ethereum, creating a roadmap for Ethereum features and requirements, and providing the resources that will allow enterprises to address various use cases of this relatively new technology.
In addition to the Ethereum Alliance, the Accord Project was announced this week to create standards for data-driven contracts and facilitate the development of open-sourced Hyperledger tools. Similar to the Ethereum Alliance, the Accord Project will explore various use cases for smart contracts and ensure that technical and legal standards exist for their implementation.
Most importantly, both groups represent a step toward the most pressing requirement in the smart contract revolution: the need for numerous players to buy into the core technology. Until these projects reach a critical mass of support from legal firms, developers, and enterprises, static PDF and paper contracts will remain the industry standard. However, with Accord’s support from 900+ lawyers across 12 offices in the US, China and Europe and Ethereum Alliance members like Cisco, JP Morgan, and Microsoft, widespread adoption may not be too far away.