5 ways hybrid smart contracts are changing the blockchain industry
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For years, the blockchain industry has been defined by the enthusiasm for smart contracts, or tamper-proof digital agreements that automatically execute when a certain condition is met. Usually associated with blockchains like Ethereum, smart contracts allow developers to create decentralized applications or “dApps” that recreate all kinds of products without the need for a rent-seeking middleman. However, over the past year, smart contracts have started to evolve.
While developers are still building smart contracts on blockchains like Ethereum, they have also started to combine them with brand new technology: oracles. Oracles are entities that allow blockchains to interact with data and systems in the traditional world.
Therefore, “hybrid smart contracts”, Or smart contracts that combine on-chain code with off-chain oracles, have taken the world by storm because of the enhanced functionality they enable dApps. Today, hybrid smart contracts are powering several new use cases in dozens of industries, and the combination of blockchains like Ethereum and popular oracle networks like Chain link are now making digital deals that manage tens of billions of dollars in user funds.
Here are five exciting ways the hybrid smart contract model is transforming the blockchain industry.
1. Market data for DeFi
Today, the hybrid smart contract model forms the backbone of much of the Decentralized Finance (DeFi) industry, which seeks to recreate traditional financial products using a decentralized architecture to meet financial terms. . Hundreds of popular DeFi apps that allow users to borrow, lend, trade, save and create assets now rely on an Oracle network to retrieve, validate, and deliver aggregated real-world data . This data then determines how smart contracts run and settle on blockchains.
For DeFi giants like loan applications Aave and Compound, Oracle networks can crowdsource accurate price data in a very reliable and tamper-proof manner. Price data is the lifeblood of DeFi and is used to execute closeouts, determine lending rates, and verify limit orders providing the fair market valuation of cryptocurrency, commodities, etc.
Hackers know this and often try to manipulate price data as a way to break a smart contract, causing severe damage to DeFi applications that rely on poor data or unsafe oracle mechanisms. To avoid this problem, many DeFi applications have turned to Oracle networks that pull data from premium data providers and consist of nodes operated by professional DevOps teams.
The rise of the hybrid smart contract model has also been a boon for DeFi developers; instead of trying to figure out how to build an infrastructure to securely get pricing data for their smart contracts, they can focus on their products and just connect to an existing decentralized Oracle network for their data when they’re ready. . In the same way that apps like Uber combine services like Twilio for messaging, Stripe for payments, and Google Maps for location, DeFi apps are created by combining a chain smart contract code with oracles for data from off-chain price.
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2. Meteorological data for parametric insurance
Beyond DeFi, the hybrid smart contract model is used to create all kinds of cool apps that can improve people’s lives. Decentralized Oracle networks now have the ability to deliver weather blockchain data from sources such as the National Oceanic and Atmospheric Administration via Google cloud Where Accuweather, i.e. projects like Arbol can build parametric insurance contracts that pay automatically when a certain weather condition is reached. The ability to instantly receive an insurance payment when it rains too much or too little is extremely important to farmers around the world, most of whom do not have access to reliable insurance products with timely payments. With hybrid smart contracts, a farmer could hedge against weather risks with little more than a smartphone, ensuring that a single season of bad weather doesn’t cause bankruptcy.
3. Satellite data for regenerative agriculture
Since hybrid smart contracts can interact with our real world, they can also be used to encourage or induce important behavior. For example, the green world campaign, in collaboration with Cornell University’s Cryptocurrency and Contracts Initiative (IC3), is developing hybrid smart contracts that leverage satellite imagery to reward people who help regenerate agriculture on large tracts of land, such as through reforestation. When Oracle networks report increased tree coverage in satellite imagery, land stewards are paid for their hard work in a transparent and fair manner.
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4. Dynamic NFT
Non-fungible tokens (NFT) are blockchain-based assets that represent a single element. They have taken the world by storm in recent months, with old and new artists entering this new space. While the first generation of NFT was static in that it hasn’t changed, the hybrid smart contract model could completely transform the next generation of this popular trend.
Using Oracle networks, smart contract developers can create “Dynamic NFTOr NFTs that can change automatically when something happens in our real world. For example, NBA Rookie of the Year Lamelo Ball creates NFTs that change based on his performance as a player and career progression, introducing additional utility for holders. Sports cards that grow and change with the player or weather-augmented artwork could make NFTs a much more meaningful experience for fan rewards programs and “living” digital art.
5. Random in the game
By their nature, blockchains cannot securely generate randomness. As a result, many blockchain applications that rely on the generation of random numbers are often hacked or exploited, reducing user trust. This poses a huge problem when it comes to all kinds of gaming and NFT apps that rely on random outcomes, whether it’s random prize pools, rare NFT drops, PvP battles, or even creation. objects in the game. With insecure or opaque randomness, the results of blockchain games and the rarity of NFTs can be called into question.
To overcome this limitation, popular blockchain games, like Infinite Axis, Swimming pool, and Ether Cards use oracles to generate random numbers backed by cryptographic proof using a Random function verifiable (VRF). These results are transferred to the blockchain where they can be verified in a completely transparent way and ensure that the results of smart contracts are random but clearly fair. In this case, hybrid smart contracts allow blockchain games and NFTs to maintain their reliability across all elements of their technology stack and have led to new innovative use cases such as lossless savings pools, battles. royal, the “living” or “dynamic” NFTs. , and more.
While the first blockchain-based smart contracts played a huge role in the creation of tokens and dApps, the next evolution involves smart contracts that can interact with everything outside of blockchain, connecting this new world to our existing world for a potentially powerful synergistic value proposition comparable to the effect of the Internet on computers. With increasingly interesting datasets being transported over blockchains through decentralized Oracle networks, the case for widespread adoption of the hybrid smart contract model is growing stronger every day.
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