Decentralized finance (DeFi) markets may have cooled down over the past year, but the technology powering these applications continues to advance. In
Decentralized finance (DeFi) markets may have cooled down over the past year, but the technology powering these applications continues to advance. In particular, smart contract platforms that enable transactions to take place across DeFi applications are maturing to meet enterprise requirements.
While it’s notable that enterprises have previously shown interest in DeFi use cases, smart contract limitations have hampered adoption. A report published by Grayscale Research in March puts this in perspective, noting that “Despite handling millions of transactions per day, smart contract platforms in their current state would be incapable of handling even 10% of the worlds’ internet traffic.”
This notion is particularly troublesome considering the market opportunity behind DeFi. For instance, Grayscale Research’s report mentions that DeFi and Metaverse applications combined are likely to have a market capitalization much larger than the current digital asset market.
How smart contracts are advancing
Given this potential, it’s become clear that smart contracts must advance in order to accommodate growth. John Woods, chief technology officer of the Algorand Foundation — the supporting organization of the eponymous blockchain ecosystem — told Cointelegraph that today’s smart contracts have a number of technical restrictions, such as scalability issues, which have resulted in slow transaction time and the inability to process complex computations.
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Woods shared that smart contracts uploaded to the Algorand blockchain are applied primarily to traditional DeFi use cases that enable things like automatic trading of on-chain digital assets. Yet, when it comes to enterprise use cases, Woods mentioned that he believes it’s best to put as little information on-chain as possible. He said:
“I’ve previously worked with large enterprises that would want to conduct DeFi use cases like post-trade settlement on a blockchain network. When I was building those enterprise applications, I would only put the most important pieces of information on-chain. This would allow smart contracts to perform efficiently without having to do heavy computation on-chain.”
According to Woods, this methodology allows enterprises to benefit from smart contacts, yet only when simple computations are involved. While this may serve as a solution to current limitations, advancements are being made to ensure that all enterprise data can be supported by smart contracts.
For example, Scott Dykstra, chief technology officer and co-founder of Space and Time — a decentralized data platform — told Cointelegraph that his firm is building a community-operated off-chain data platform that can handle any workload in a single cluster.
“We’re working to enable developers to run queries against data we’ve indexed from all major blockchains and data loaded from any off-chain source,” he explained. After queries are run, Dykstra explained that Space and Time uses patented novel cryptography, known as “Proof of SQL,” which can prove each query result is accurate and that the underlying data hasn’t been tampered with.
This is an important point, as Dykstra pointed out that enterprise data queries are typically run in off-chain data warehouses. But, because these data warehouses are centralized, query results often can’t be trusted by a smart contract and, therefore can result in limitations.
Given that Space and Time can cryptographically prove that each data query result is accurate, Dykstra explained that this allows for complex computations to be connected directly to smart contracts without limitations.
“Space and Time’s ability to connect analytic query results directly to smart contracts (with cryptographic guarantees), will serve as a trustless intermediary between enterprise data and the limited storage of the blockchain,” he said. In turn, this process will automate more complex business logic for enterprise use.
Although this solution allows for complex data to be processed by smart contracts, privacy concerns remain. Paul Brody, global blockchain lead at EY, told Cointelegraph that while the value proposition of smart contracts for enterprises is enormous, so are the obstacles. He said:
“The biggest is privacy — public blockchains don’t natively support privacy. Since companies consider their buying arrangements to be sensitive information, no firm will deploy these solutions until they are confident in the privacy approach.”
Woods is also aware that enterprises are hesitant to use smart contracts due to privacy concerns. “Everything currently done across a public blockchain network is transparent, but enterprise use cases require some level of privacy. What’s coming next is privacy on smart contracts,” he said.
As such, Woods shared that Algorand is currently working on a smart contract privacy solution. While no other details were…
cointelegraph.com