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Smart contracts have reshaped the possibilities of what blockchain and crypto can achieve, and we can all acknowledge that. That doesn\u2019t mean they\u2019re the be-all-end-all solution to widespread adoption.<\/p>\n
Being overzealous about any kind of innovation can also contribute to its stalling, or even failure if other factors don\u2019t align. The mentality of assuming new technology is perfect and wondering why everyone hasn\u2019t caught up to its genius is outdated. Not only does it create an adversarial relationship when inevitabilities, such as regulation, arise, but it also diminishes the motivation to improve on new applications to maximize their value.<\/p>\n
Smart contracts and companies building their products around their implementation are now nearing this impasse. So, what can be done to close these gaps and potentially set the stage for an alternative?<\/p>\n
Mainstream smart contract adoption is already kneecapped by a lack of Bitcoin (BTC<\/a>) support. Sure, the Ethereum network has become an industry heavyweight that hosts many of the world\u2019s blockchain applications, but Bitcoin is still seen as being in a league of its own by practically every metric. And as BlackRock, the top dog of traditional institutions, looks to break the Securities and Exchange Commission\u2019s Bitcoin exchange-traded fund (ETF) glass ceiling, that glaring gap will only become more apparent as others follow suit.<\/p>\n Related: <\/em><\/strong>Don\u2019t be naive \u2014 BlackRock\u2019s ETF won\u2019t be bullish for Bitcoin<\/em><\/strong><\/a><\/p>\n We can\u2019t ignore ETF filings or recent developments<\/a> in Bitcoin-driven finance, so saying smart contract aversion stalls Bitcoin\u2019s interoperable potential or decentralized app<\/a> integration is short-sighted.<\/p>\n The other elephant in the room is fiat. Hundreds of projects are working to make cross-ecosystem compatibility a reality, but there is no streamlined way to connect crypto and fiat through a smart contract framework.<\/p>\n Yes, you can introduce centralized intermediaries to foster fiat-to-crypto exchanges, but that opaque, trust-maximized, expensive solution defeats crypto\u2019s intended purpose altogether. And that\u2019s before touching on the security issues that inherently follow their implementation.<\/p>\n Smart contracts may be (and usually are) controlled by the team that develops them. The inspiring, deceptively logical mottos of \u201cverify, don\u2019t trust\u201d and \u201ccode is the law\u201d are great in theory, but no one really reads the code before executing a smart contract.<\/p>\n Creating an implicit trust assumption is where hackers commonly emerge and exploit loopholes, code vulnerabilities and improper key management to crack smart contracts and steal funds.<\/p>\n Regulators are already well aware of smart contract vulnerabilities. Part of the reason why the European Union\u2019s Data Act garnered such divisive reactions<\/a> stemmed from its \u201ckill switch\u201d mandate<\/a> for any company using smart contracts. While the mandate may seem harsh, it illustrates an inherent technological risk that regulators aren\u2019t likely to ignore as more international blockchain regulation moves forward.<\/p>\n If companies and institutions actually want <\/em>an alternative to smart contracts, making that a reality requires a few major steps. Or, if an alternative seems out of reach at this point, smart contracts need severe alterations to seal up attack vectors when it comes to holding funds.<\/p>\n Again, smart contracts are great to enrich an application layer and amplify generic functionality, but they\u2019re not necessarily needed or well-suited to hold funds indefinitely. This is why beloved comparisons likening<\/a> smart contracts to vending machines fall a bit flat.<\/p>\n Related: <\/em><\/strong>Experiments show AI could help audit smart contracts, but not yet<\/em><\/strong><\/a><\/p>\n To the average person, using a smart contract could make it seem like the equivalent of a stranger watching over you every time you access an ATM. And just because you might trust a smart contract doesn\u2019t mean you can necessarily trust the team that made it. In this case, it\u2019s imperative to code smart contracts correctly to maximize security, with some developers even proposing new smart contract languages or implementing<\/a> a \u201cfact check\u201d software into the code.<\/p>\n \u201cRight to be forgotten\u201d data privacy regulations, such as those in the European Union\u2019s General Data Protection Regulation, also complicate things. In countries where citizens have the legal right to demand their personal data be erased, that can\u2019t exactly happen if they\u2019re bound to a digital legal agreement.<\/p>\n Getting smart contracts to cooperate with traditional financial institutions and fiat requires fundamentally altering how they operate. But since that kind of seismic change is impractical and completely unnecessary to consider at this stage, institutional onboarding requires urgently mitigating the security and privacy risks.<\/p>\n Smart contracts have many practical uses, but they may need to be viewed as a \u201cproof-of-concept\u201d rather than the key to universal adoption. Crypto\u2019s future requires a consistent dialogue with traditional finance in terms of fiat interoperability and ease of access. This can only happen by prioritizing that kind of development and addressing the obstacles preventing it from happening. If that involves steering away from complete reliance on smart contracts and exploring other options or primitives, so be it.<\/p>\n Eitan Katz<\/strong> is the CEO and co-founder of Kima. Prior to Kima, he served in leadership roles with the Israel Defense Forces (Intelligence\/8200) and at Hewlett Packard and BMC. He helped to build HP\u2019s Global Innovation and Incubation program, leading HPE\u2019s Enterprise Mobile platform. He was also a founding member of the MPC-based Bitcoin wallet Aegis.<\/p>\n<\/div>\nNecessary changes<\/h2>\n
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