Smart Contracts, Smart Property & Trustless Asset

ManagementTim Swanson

Virtual token (e.g., a bitcoin, a litecoin) having at least one moneyness attribute such as medium of exchange

It is transported and tracked on an encrypted, decentralized ledger called a cryptoledger (managed by a cryptoprotocol)

Trustlessness

Cryptocoin & Cryptoprotocol

Computer protocols that facilitate, verify, execute and enforce the terms of a contract

Current proto examples include:◦ Some digital financial instruments

used on electronic securities exchanges

◦ Point-of-sale terminals ◦ Electronic Data Interchange (EDI)

Smart contracts

They do not have a physical enforcement arm the way legal contracts do; they just move the defined asset(s) automatically under certain conditions.

Unforgeability (encrypted), confidentiality, and divisibility

Reduce the fraud and enforcement costs of many commercial transactions

Doable today (e.g. small business loan)

Smart contracts cont’d

Version 0.9 (80 byte hash)

Bitcoin currently manages one asset via one token

Dev team has limited resources

Yet in theory, a token can represent any asset

And a token can be a type of ‘smart contract’

Technical limitations of Bitcoin

Colored Coins Mastercoin Counterparty (POB) NXT (POS) Invictus Ethereum

*Open-Transaction** Ripple*** Peercover

Next generation ‘2.0’ cryptoprotocols

Property whose ownership is controlled via a smart contract, which may or may not reside on a cryptoledger

‘Proplet’ MEMS Internet of Things

Smart property

Not all gadgets, devices or digital appliances are technically smart property

Ownership must be able to transferred and managed via smart contracts

Smart Property cont’d

TradeNet/MatterNet (DAO/DACP)◦ Decentralized Autonomous X◦ Anything with a proplet

Cars Refrigerators Thermostats Smoke detectors Doors Vacuums Light bulbs UAV (Quadcopter)

Property in the future

• Manage, trade and exchange assets globally, pseudonymously (perhaps anonymously) entirely without going into fiat

TAM is a fusion of: ◦ Cryptoledger◦ Smart Contracts (e.g., tokens)◦ Smart Property (‘proplets’)◦ Decentralized exchanges◦ DAO/DACP*

Trustless Asset Management

Near frictionless within the network Entirely decentralized (e.g. DEX, Coinality,

BankToTheFuture) Reputation-based at address level (credit

score) Independent arbitration (Judge.me,

Coinsigner) Escrow (BTCrow) Tokens to represent most contractual

agreements (e.g., ‘labor’ token to represent X amount of time used as invoice and (dis)approved via atomic-transaction)

Cryptobarter

70 year leases are often 40-50 year leases

4 million rural Chinese evicted each year

Local gov’t generate 70% of annual income from land sales

120-150 million migrant workers without urban hukou’s

Property rights in China

Low Bitcoin adoption (1-2 million users) User interfaces and adoption Consumer education Legal uncertainties Institutional/incumbent inertia Reinventing the wheel Is an ideal scenario, just like PGP “Decentralization for decentralizations

sake”

“The best is the enemy of the good”

Email: tswanson@gmail.com Twitter: @ofnumbers Ofnumbers.com

Comments & Questions

Contracts very often use multi-signature outputs in order to allocate value to a group of users ... typically, the participants in the contract protocol. Multi-signature outputs are easy to create with bitcoinj.

// Create a random key.ECKey clientKey = new ECKey();// We get the other parties public key from somewhere ...ECKey serverKey = new ECKey(null, publicKeyBytes);

// Prepare a template for the contract.Transaction contract = new Transaction(params);List<ECKey> keys = ImmutableList.of(clientKey, serverKey);// Create a 2-of-2 multisig output script.Script script = ScriptBuilder.createMultiSigOutputScript(2, keys);// Now add an output for 0.50 bitcoins that uses that script.BigInteger amount = Utils.toNanoCoins(0, 50);contract.addOutput(amount, script);

// We have said we want to make 0.5 coins controlled by us and them.// But it's not a valid tx yet because there are no inputs.Wallet.SendRequest req = Wallet.SendRequest.forTx(contract);wallet.completeTx(req);   // Could throw InsufficientMoneyException

// Broadcast and wait for it to propagate across the network.// It should take a few seconds unless something went wrong.peerGroup.broadcastTransaction(req.tx).get();

Creating multi-signature outputs

A common requirement when implementing contract protocols is to pass around and sign incomplete transactions. The Wallet class doesn't know how to handle outputs that aren't fully owned by it. So we'll have to sign the spending transaction

ourselves. The key point to bear in mind is that when you sign a transaction, what you actually sign is only parts of that transaction. Which

parts are controlled by the signature hash (sighash) flags. But no matter which flags you select, the contents of input scripts are never signed. Indeed that must be the case, because otherwise you could never build a transaction - the act of signing the second input would modify the version of the transaction signed by the first, breaking the signature.

This means that signatures can be calculated and sent between different parties in a contract, then inserted into a transaction to make it valid.

// Assume we get the multisig transaction we're trying to spend from // somewhere, like a network connection.ECKey serverKey = ....;Transaction contract = ....;TransactionOutput multisigOutput = contract.getOutput(0);Script multisigScript = multisigOutput.getScriptPubKey();// Is the output what we expect?checkState(multisigScript.isSentToMultiSig());BigInteger value = multisigOutput.getValue();

// OK, now build a transaction that spends the money back to the client.Transaction spendTx = new Transaction(params);spendTx.addOutput(value, clientKey);spendTx.addInput(multisigOutput);

// It's of the right form. But the wallet can't sign it. So, we have to// do it ourselves.Sha256Hash sighash = spendTx.hashTransactionForSignature(0, multisigScript, Transaction.SIGHASH_ALL, false);ECKey.ECDSASignature signature = serverKey.sign(sighash);// We have calculated a valid signature, so send it back to the client:sendToClientApp(signature);

Partial signing

The server receives the contract and decides to give all the money back to the client (how generous of it!). It constructs a transaction and signs it. Now the client must repeat the process and construct exactly the same transaction and calculate a signature in the same way. It is then in possession of two valid signatures over the same transaction, one from itself and one from the server. All that is left is to put them both into the transaction:

TransactionOutput multisigContract = ....;ECKey.ECSDASignature serverSignature = ....;

// Client side code.Transaction spendTx = new Transaction(params);spendTx.addOutput(value, clientKey);TransactionInput input = spendTx.addInput(multisigOutput);Sha256Hash sighash = spendTx.hashTransactionForSignature(0, multisigScript, Transaction.SIGHASH_ALL, false);ECKey.ECDSASignature mySignature = clientKey.sign(sighash);

// Create the script that spends the multi-sig output.Script inputScript = ScriptBuilder.createMultiSigInputScript(    ImmutableList.of(mySignature, serverSignature), Transaction.SIGHASH_ALL, false);// Add it to the input.input.setScriptSig(inputScript);

// We can now check the server provided signature is correct, of course...input.verify(multisigOutput);  // Throws an exception if the script doesn't run.

// It's valid! Let's take back the money.peerGroup.broadcastTransaction(spendTx).get();// Wallet now has the money back in it.

Partial signing cont’d