Smart Contracts: Building a Trusted System in an Untrusted World

Blockchain Technology Promises to Expand Cyber Capabilities

In 2009, a new type of currency, called Bitcoin, was invented by an unknown programmer, or group of programmers, who went by the pseudonym Satoshi Nakamoto. This new electronic currency is completely decentralized, with no banks or government entities acting as backers.

Larry Shi's Research GroupLarry Shi’s research group is investigating applications for blockchain technology.From its humble beginnings, Bitcoin’s value has increased exponentially, with an ever-increasing number of merchants accepting the currency.

Blockchain an Open Ledger

Bitcoin is an application of blockchain, which is an open ledger with a continuously growing set of records. With Bitcoin, these records are transactions. This open peer-to-peer system ensures that the currency cannot be duplicated or erased, which was the major problem with other attempts to establish electronic cash systems.

As it turns out, blockchain is a system with untold potential, of which Bitcoin is only a fraction of its potential. University of Houston computer scientists are working on research to help answer what the potentials of this technology might be.

“Our research is trying to understand what blockchain technology can do, what possibilities this technology enables, and what its future potential is,” said Weidong ‘Larry’ Shi, an associate professor of computer science in the College of Natural Sciences and Mathematics.

Further applications for blockchain are still in the early stages, but it promises to be a significant technology that will expand cyber capabilities.

Building Trust in an Untrusted World

“Blockchain is about building a trusted system in an untrusted world,” said Nolan Shah, a computer science major who conducts research in Shi’s lab. “To create these blocks in an untrusted setting, you have a network of peers that use consensus protocols to decide which block is added to the chain.”

Shi’s lab is exploring other possible applications of using blockchain. One application of blockchain is smart contracts, which are essentially a way of guaranteeing the execution of a contract once specific criteria have been met. Also involved with this research is Nour Diallo, (’17), a master’s student in Shi’s lab.

Blockchain Can Be Used to Execute Contracts

“In the physical world, the person who makes sure the contract is executed faithfully would be the judge,” Shah said. “On the blockchain, it’s the network of peers that make sure the contract is executed faithfully.”

An example of a smart contract would be the condition that when the exchange rate reaches 60 rupees to one dollar, Amy will buy Bob’s car.

For this car sale, the peer-to-peer network would need to reach consensus that the exchange rate is in fact 60 rupees to one American dollar. Once this consensus was reached, the contract would execute, with the car title being transferred automatically from Bob to Amy.

Contracts as Computer Code, Enforced by Community of Peers

“A smart contract describes agreements as code, with enforcement of these contracts by the community of peers,” Shi said.

These contracts are decentralized, meaning that there is no one government entity or enforcement agency that executes the agreements. Instead, contracts are executed as a result of the entire system of peers being able to reach consensus. Then, once consensus has been reached, the contract is written into the code, the decision being irreversible.

Sharing-Economy Contracts on the Blockchain

In on-going research, Shi’s group is looking at the potential for creating sharing-economy applications, such as Uber, that work on the blockchain.

“With sharing-economy applications, there is a centralized broker that enforces the agreement between the two parties involved,” Shi said. “Can we use blockchain to create a decentralized broker? This has the potential to give more flexibility and options to the people involved, rather than these companies creating a monopoly on pricing.”

Shi’s lab has discovered that although this is theoretically possible, there are a lot of complicating factors, one being the issue of who is legally responsible. Applications such as Uber act as a centralized broker, assuming some responsibility when there is a breach of contract between buyers and sellers. Since blockchain is a peer-to-peer network, this centralized authority is removed.

The second complication is that since this blockchain is an open ledger, in the event of a user’s identity being compromised, their private data, such as what rides they take and when, would become publicly available.

“Blockchain as a concept is completely decentralized and community-based,” Shi said. “It can be thought of as a new way to build a society.”

- Rachel Fairbank, College of Natural Sciences and Mathematics