On and Off-Blockchain Enforcement Of Smart Contracts

TL;DR

This paper examines converting traditional contracts into smart contracts using blockchain technology, highlighting limitations of blockchain and proposing hybrid solutions combining on- and off-blockchain enforcement for better performance and scalability.

Contribution

It analyzes the limitations of blockchain for smart contract enforcement and proposes hybrid approaches integrating on- and off-chain enforcement mechanisms.

Findings

Blockchain has performance and scalability limitations for smart contracts.

Hybrid solutions can combine blockchain transparency with off-chain efficiency.

Centralized enforcement may be preferable in certain applications.

Abstract

In this paper we discuss how conventional business contracts can be converted into smart contracts---their electronic equivalents that can be used to systematically monitor and enforce contractual rights, obligations and prohibitions at run time. We explain that emerging blockchain technology is certainly a promising platform for implementing smart contracts but argue that there is a large class of applications, where blockchain is inadequate due to performance, scalability, and consistency requirements, and also due to language expressiveness and cost issues that are hard to solve. We explain that in some situations a centralised approach that does not rely on blockchain is a better alternative due to its simplicity, scalability, and performance. We suggest that in applications where decentralisation and transparency are essential, developers can advantageously combine the two approaches into hybrid solutions where some operations are enforced by enforcers deployed on--blockchains and the rest by enforcers deployed on trusted third parties.