This past year i.e. 2017 saw the nobel prize in economics go to Hart and Holmstrom for their work on contract theory. An old pre-print version of their thesis on the Theory of contracts is found here.
Their theory argues that contracts improve efficiency in transactions by setting rules for transactions, and, mechanisms by which rules are enforced. This basic understanding spawned several debates including ones about the boundaries of firms, and, saw entire industries such as software outsourcing, etc. being created.
Smart contracts build upon this theory by automating exchanges of value, by validating rules, between two intervening parties for any transaction. Ethereum & Solidity programming have been predominant mechanisms by which contracts are written on software applications.
A unique token mechanism that provides for a global validation of the contract on the Blockchain has created a very unique set of applications. For example Augur is a smart contract based token that rewards participation in prediction markets.
Similarly, GNT is a smart contract based token that rewards individuals who lend their spare computing cycles. There are many more such contracts for automated payment based businesses, media platforms such as TRON, Block-chain software based EOS, Exchange token BNB used for transferring standalone value, etc…
A recent study found that off the top 100 most valuable coins by marketcapitalization, about 90% of them are smart contract based tokens built atop Ethereum.
Ethereum itself supports many forms of contractized tokens:
1.ERC-20 the most popular value holding token.
2.ERC223- a standardized token that validates and corrects problems with ERC 20.
3. ERC721- Digital asset standards on ethereum.
4. ERC827- A modification of ERC20 that allows transfer of value in-conjunction with Data.
A comparison of these different contracting mechanisms can be found here.
In the next few parts of this post we will look at the Waves platform, the Tron Platform and the NEO paltform all of which advance the smart contracts business.