Smart contracts have revolutionized the way in which the tech-industry works today. However, just like the blockchains they’re built on, smart contracts are still in their nascent stages of development. The massive marketing hype surrounding the immutability and security of blockchain tech has served to cover up a little-known fact the ‘smart contracts are not entirely secure’.
As per Amy Wan, CEO and co-founder of Sagewise, ‘smart contracts are not as smart as you think.” Indeed, who can forget the highly publicized DAO attack in 2016 when a vulnerability in Ethereum was exposed by an opportune hacker, causing a loss of $150 million? It wasn’t a weakness in the blockchain technology itself, but a loophole in the smart contract. And loopholes aren’t the only issue.
Here are the top five problems with smart contracts right now:
1. They’re Easily Hackable
The aforementioned DAO hack not only sent shockwaves throughout the entire crypto community but also served as a stark reminder that smart contracts are easily hackable. In fact, many people are paid to hack such contracts in an attempt to detect their weaknesses and make them stronger.
2. They’re Very Difficult to Change
Even the tiniest error in a smart contract can be very difficult (if not impossible) to rectify. This means that even the most minute programming mistake can be the loophole that costs a company millions of dollars.
But you can’t simply update a smart contract without losing all of the original information. A workaround solution is allowing for upgrade files to be added to make smart contracts more robust, but the mechanism is not quite perfect yet.
3. They’re Subject to Human Error
Smart contracts are programmed by humans and hacked by humans. In fact, wherever humans are involved, there is always a chance for things to go wrong.
A similar sentiment is echoed by Scott Schober, a cybersecurity expert and author of Hacked Again, who says “humans are the biggest problem in cybersecurity today.” If a contract is only as good as the developer who coded it, how “smart” can smart contracts really be?
4. The Law is Open to Interpretation–Smart Contracts Are Not
Smart contracts are incapable of taking into account human factors and other variables that would render a regular contract null and void. While that’s a good thing in many circumstances, meaning that contracts cannot be broken or tampered with, that prevents them from being used for anything other than rudimentary applications.
5. Smart Contracts Don’t Factor In Unforeseen Circumstances
US courts recognize a concept called the implied covenant of good faith and fair dealing. This is something implied in every contract. Say, for example, the owner of a genuine antique makes a sale to a buyer in good faith but it turns out later that the piece is a fake. The buyer should then be able to claim a refund on the basis of ‘good faith’. However, that is not the way smart contracts work.
For all these current failings, it still pays to recognize the sheer genius behind smart contracts and the potential they hold. Perhaps smart contracts applied with AI or machine learning will be able to take into account human behaviour and reasonable doubt in the future.
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