Ripple Labs Unveils Proposal for New Smart Contract System

By July 22, 2014Bitcoin Business
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Ripple Labs Unveils Proposal for New Smart Contract System

smartcontracts

San Francisco-based Ripple Labs, a startup focused on building payment and digital assets networks, has unveiled a comprehensive plan for the development of a new smart contract system.

Called Codius, the proposed system will be programming language agnostic and will be able to work with existing monetary and contractual systems.

There are a few projects in the works for building smart contract solutions that involve cryptography. But Ripple Labs‘ Codius effort is perhaps a framework that many in the cyrptocurrency space have been searching for in order to build asset structures.

Stefan Thomas, Chief Technology Officer at Ripple Labs, told CoinDesk that programmable contracts in digital form will be ubiquitous someday – and that the company wants to be a steward for this technology.

Thomas said:

“[Smart] contract logic decides who should receive the money. It can query any internet server to do so, including crypto networks, web services, etc. Based on the decision, the contract hosts will allow a transaction sending the money to that recipient to succeed.”

Smart oracles

In a blog post and whitepaper on GitHub, the Ripple Labs plan for Codius is ambitious, building off of researcher Nick Szabo’s early work in programmable methods of contract law.

It relies on the use of what is known as an oracle, which is an instance that can sign a cryptographic key pair if or when a condition is met, hence the concept of a “smart” contract that can execute by itself when it has proper inputs.

“Oracles sign things and the signatures trigger actions in the distributed networks,” said Thomas.

The Codius project calls these “smart oracles”, in the sense that they will be able to operate on an untrusted codebase. This means that there will be open access to this project for most developers since it will not require the use of a specific programming language.

Thomas explained:

“Compared to conventional oracles [such as for bitcoin], smart oracles don’t require you to learn how to write code for the deterministic environments. You can write regular JavaScript, or any other language that somebody has ported to Codius and treat bitcoin as if it was your database.”

Smart oracles handle the sandboxing, identification and even hosting of these digital assets. As well, the system will be able to integrate with a number of different systems of value: bitcoin, Ripple’s XRP or even fiat money.

The smart contract economy

Ripple Labs believes an entire industry will be built around smart digital assets – just like what is happening in the cryptocurrency realm. One of the earliest business ventures besides the actual creation of smart contracts might be hosting platforms for them.

“You run somebody’s code and they pay you for it. I could see hosting companies starting to add contracts offerings,” said Thomas. “Hosting VMs [virtual machines] is a very similar business model.”

The bitcoin mining sector might find value in getting into the smart contract business as well.

Total bitcoins over time. Source: Bitcoin Wiki
Total bitcoins over time. Source: Bitcoin Wiki

Generating new coins is profitable in bitcoin right now, but this may not be the case in the future for some mining operations. In addition to generating revenue for confirming transactions, miners may find that hosting smart contracts is another lucrative venture down the road.

Said Thomas:

“Essentially miners are performing a validation function for the network in exchange for a reward, again a very similar concept as running a Codius host and being paid for running contracts.”

Legal ramifications

The use of smart contracts could solve not only the antiquated problems of using paper for legal purposes. It could also make legal systems around the globe more efficient should this technology be adopted.

Greg Kidd is Ripple Labs’ Chief Risk Operator, and worked at Promontory Financial Group prior to joining the company. He told CoinDesk:

“We see smart contracts as a layer between the contracting parties and the legal system. Right now, if anything goes wrong with a contract, you have to go to the legal system, which is extremely slow and expensive.”

Companies spend billions of dollars every year on various legal costs. Smart contracts might not be a solution for any sort of disputed situation. But Kidd, who previously worked with the Board of Governors at the Federal Reserve, thinks that the technology has promise to improve the broader legal system.

Contract enforcement can cost time and money. Source: Doingbusiness.org
Contract enforcement can cost time and money. Source: Doingbusiness.org
Traditional contract enforcement costs time and money. Source: Doingbusiness.org.

“If you can write smart contracts that handle 50% of the possible ways that a given contract can go wrong, you can save 50% of the expected legal fees from entering the contract,” he said.

Development continues

There are already a few different cryptographic smart contract projects in various stages of development. One, called Ethereum, is still in the early developmental stages.

The same goes for colored coins, which act as a token on top of bitcoin. That effort has seen little industry traction so far, but a company called Coinprism is still trying to advocate its use.

“I’m waiting for an actual implementation. We are very excited about the opportunities arising out of smart contracts and other block chain technologies, but it’s early days,” said Fabio Federici, whose startup Coinalytics analyzes block chain data for its clients. 

Nevertheless, the Codius white paper and its proposed use of Google’s Native Client to execute a small and secure base of code is novel. The applications Ripple Labs envisions for the Codius project are numerous. The list include tools that cover voting, escrow, derivatives, auctions, property and the equities markets.

In essence, smart contracts have the capability of innovating lawful agreements in a way similar to how cryptocurrency is changing existing concepts of money and value exchange.

Kidd, the Ripple Labs Chief Risk Officer, added:

“We’re interested in making antiquated systems such as payments, and legal vastly more efficient and democratic using distributed technology. Codius improves and opens access to the process of creating and executing legal agreements, so lawyers, judges, etc. can focus their energies on more complex cases.”

To learn more about Ripple labs, its architecture and its role in digital currency ecosystem, read our most recent report on the company here.

Technology and human image via Shutterstock


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