Lauded as the future of blockchain, business, and banking (among many other things), smart contracts are undeniably a game changer. They allow efficient supply chain management, financial transactions, and automated payments to take place without intermediaries. But smart contracts, contrary to popular opinion, are not infallible.
In fact, according to Amy Wan, the CEO and co-founder of Sagewise, smart contracts are not as smart as you think they are. While it’s true that such agreements provide a certain amount of security by virtue of existing on a blockchain network, Wan believes that “the term ‘smart contract’ may be a misnomer.”
As a former securities attorney and general counsel of a crowdfunding startup who learned to code on Coursera, Wan straddles the legal and tech worlds with expertise and dexterity. She’s also a woman in a male-dominated industry, meaning she has to “work harder to be taken seriously” (and never has to wait in line for the restroom).
Here’s what she had to say.
PLENTY CAN (AND HAS) GONE WRONG WITH SMART CONTRACTS
Wan is on a mission to provide transactional confidence and certainty, which she points out “are necessary for the long-term success of the blockchain industry.” As it happens, a lot can go wrong (and has gone wrong) due to smart contract errors.
“In 2016,” she says, “at least $60 million was lost in the blockchain space as the result of hacks. In 2017, that amount was estimated to be [anywhere from] $500 million to $1 billion. The DAO hack of 2016 alone resulted in the loss of $50 million. The Parity Wallet hacks of 2017 resulted in the loss of hundreds of millions of dollars of value. Both of these were based on coding errors and alterations of important code.”
Smart contracts, Wan believes, are “full of vulnerabilities.” While you can argue that the technology is new and still striving for perfection with the use of bug bounties, formal verification, and code audits, Wan poses the question – what happens when those measures fail, as in Parity’s case?
“In the spring of 2017, I was watching the ICO industry very closely because it was taking off much more than the regulated crowdfunding industry. However, it seemed that every other day I would see a news story of an ICO being hacked for millions of dollars, and the founders often seemed powerless to do anything… As I looked into these hacks, I learned that smart contracts are only as good as the developer who coded it.”
HUMANS CAN FIX HUMAN ERRORS
Curiously, while the biggest flaw in smart contracts may be caused by human error or misintention, the best way to fix it may be to humanize the dispute resolution process. “At Sagewise,” Wan explains, “we are building a safety net for smart contracts. It is the toolbox that allows people to achieve their true transactional intent, and it includes a robust dispute resolution marketplace.”
But doesn’t adding another layer of humanity to a human-free technology seem counter-intuitive, to say the least? “We certainly are not proponents of unnecessary human intervention,” she explains. “However, there are certain instances in which code fails, whether that is because of a coding error, a securities vulnerability, [or] the failure of parties to truly put into code their intents. Code is static, but human situations are not.”
BOTS CAN ALSO FIX HUMAN ERRORS
“In those (hopefully rare) instances where a smart contract fails to achieve the intent of the parties, we believe there needs to be some sort of infrastructure that attempts to ameliorate the situation,” Wan explains.
However, it may not always take the shape of a living being with a beating heart and blood coursing through its veins. A dispute could also be fixed without human intervention. “In certain instances, it might be best for the dispute to be resolved by a bot,” she confirms.
Essentially, the mission of Sagewise is to ensure that problems are resolved and that people and businesses can transact safely. “At the end of the day, there needs to be some sort of a safety net,” Wan concludes. And as more and more businesses get on board with blockchain technology, it will be comforting to know that in such situations, someone has their back.