Smart Contract

Short Answer Question with hint

  1. What are smart contracts?
    • Answer: Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. They exist on a distributed, decentralized blockchain network, allowing for trusted transactions without the need for a central authority.
  2. Who first proposed the concept of smart contracts and what analogy did they use?
    • Answer: Nick Szabo first proposed the concept of smart contracts in 1994, using a vending machine as the primary analogy to explain how smart contracts automatically execute the terms once predetermined conditions are met.
  3. Name two uses of smart contracts in financial services.*
    • Answer: In financial services, smart contracts are used for automating insurance payouts and dividend payments.
  4. How do smart contracts enhance supply chain management?
    • Answer: Smart contracts enforce agreements upon the achievement of specified conditions in supply chains, such as goods being received by a warehouse, thereby enhancing transparency and efficiency.
  5. What role do smart contracts play in real estate transactions?
    • Answer: Smart contracts automate various aspects of real estate transactions, including property sales and leasing, eliminating the need for physical documents and reducing fraud.
  6. Describe how smart contracts can be used in voting systems.
    • Answer: Smart contracts can create transparent and tamper-proof voting mechanisms, ensuring the integrity of the election process.
  7. What is a Decentralized Application (DApp)?*
    • Answer: Decentralized Applications (DApps) run on a peer-to-peer network of computers using blockchain technology. They are often associated with smart contracts, operate autonomously, and have no central point of control.
  8. Give an example of how DApps are used in finance.*
    • Answer: In finance, Decentralized Finance (DeFi) applications offer financial services like lending and borrowing without traditional financial intermediaries.
  9. What is an example of a decentralized marketplace that uses smart contracts?
    • Answer: OpenBazaar is an example of a decentralized marketplace that uses smart contracts to facilitate direct peer-to-peer transactions without a central authority.
  10. How are smart contracts used in the distribution of music royalties?*
    • Answer: Ujo Music uses smart contracts to automate the distribution of music royalties, dividing the payment among rights holders according to pre-defined rules whenever a song is played.

Long Answer Questions with hint

1. Design a Smart Contract for a Supply Chain System (Creation Level)

Question: Suppose you are assigned the responsibility of developing a smart contract for a supply chain system that monitors the movement of perishable goods from the manufacturer to the retailer. Define the manner in which conditions would be integrated into the smart contract to safeguard the supply chain’s integrity, encompassing the appropriate storage and punctual delivery of goods.*

Answer: The smart contract would include conditions such as temperature and humidity requirements for the storage and transportation of perishable goods, timestamp checkpoints at each stage of the supply chain, and automatic payment release upon the fulfillment of all conditions. IoT devices could be integrated to monitor conditions and update the smart contract in real-time. If the goods meet the specified conditions at every checkpoint, the contract would automatically initiate the next step in the supply chain, ensuring efficiency and transparency. Payment to the supplier would be held in escrow by the smart contract and released only upon successful delivery and verification of the goods by the retailer, ensuring all parties fulfill their obligations.

2. Evaluate the Impact of Smart Contracts on the Real Estate Industry (Evaluation Level)*

Question: Determine the extent to which the implementation of smart contracts could revolutionize conventional real estate industry procedures. Analyze the potential advantages and obstacles associated with the implementation of smart contracts in real estate transactions, such as rentals and sales.

Answer: Smart contracts in the real estate industry could streamline transactions by automating property sales, leasing processes, and rental payments, thus reducing the need for intermediaries such as brokers and lawyers. This automation could lead to increased efficiency, reduced transaction times, and lower costs. However, challenges might include the digital divide, where not all parties are comfortable or familiar with blockchain technology, and the potential for coding errors in smart contracts that could lead to disputes or financial loss. Regulatory acceptance and the integration with existing legal frameworks also pose significant challenges. Overall, while smart contracts offer transformative potential, careful implementation and legal adaptation are necessary to fully realize their benefits and mitigate risks.

3. Analyze the Security Implications of Smart Contracts in Financial Transactions (Analysis Level)

Question: Analyze the security ramifications associated with the implementation of smart contracts in financial transactions, with an emphasis on the merits and demerits of this technology with regard to safeguarding data, preventing fraudulent activities, and exposing potential weaknesses.*

Answer: Smart contracts enhance financial transactions’ security by providing a tamper-proof, transparent, and irreversible execution platform, reducing the risk of fraud and unauthorized modifications. They can automate and enforce the terms of an agreement, ensuring trust between parties. However, vulnerabilities in smart contracts, such as coding errors or exploits, can lead to security breaches and financial loss. Additionally, the immutable nature of blockchain means that once a smart contract is deployed, it cannot be altered, making it critical to ensure the contract is error-free before deployment. While smart contracts offer significant security benefits, they also require rigorous testing, auditing, and possibly insurance mechanisms to address potential vulnerabilities and protect stakeholders.

4. Design a Scenario Utilizing Smart Contracts for Identity Verification (Creation Level)

Question: Consider a hypothetical situation in which digital identities are managed securely and efficiently via smart contracts. Elucidate on the design of a system that leverages smart contracts to facilitate identity verification in a seamless manner across multiple platforms, while safeguarding the user’s privacy and autonomy.*

Answer: The system would utilize smart contracts to create a decentralized identity verification platform. Users would register their identity on the blockchain, and a smart contract would issue digital certificates representing their identity. These certificates would be stored securely on the blockchain, accessible only by cryptographic keys held by the user. For identity verification, the user would grant temporary access to their digital certificate to the requesting platform through the smart contract, without sharing personal details directly. The smart contract would automatically verify the identity against the blockchain record and notify the platform of the verification status. This ensures that users maintain control over their personal information, providing privacy and security, while also allowing for easy and secure verification across multiple platforms.