Blockchain, the huge distributed database which generates secure and reliable records, is trendy but has not yet achieved mass adoption.
What is preventing this technology from reaching the wider public? Alongside the fact that Blockchains are still in their infancy, one of the primary barriers to their widespread adoption is the price volatility of cryptocurrencies. Changes in supply and demand generate mistrust and uncertainty. The result is that users do not consider using them for day-to-day activities.
Francisco Gordillo, a specialist in cryptocurrencies and the CEO of Fluon Ecosystem, believes that this volatility "is typical of new markets which do not yet boast a critical mass, and the supply and demand curves are still shifting abruptly." According to Gordillo, these fluctuations are caused by the "lack of understanding of the intrinsic value of cryptocurrencies, which is derived from the novelty of the collaboration scheme based on the decentralization and the limited liquidity of the markets in which they are traded."
In order to tackle this problem and bring cryptocurrencies to the masses, Banco Sabadell organized the first Ethereum Smart Contracts Hackathon. It took place on February 27th and 28th within the 4 Years From Now (4YFN) framework during the Mobile World Congress (MWC) in Barcelona, Spain.
With Vitalik Buterin, the creator and leader of Ethereum –a platform based on Blockchain– as the star of the event, the company prepared a development environment formed by a private Blockchain network for close to 40 participants. The objective was to find use cases for cryptocurrencies and put them into practice through smart contracts. Participants represented companies like Banco Sabadell, Endesa, Roca Junyent, Zurich, Artistic Island, BigChain DB, Biid, Quipu, Riddle & Code, Scytl, Sharge and Starting legal.
Once the challenges had been analyzed, Banco Sabadell identified that the creation of an electronic currency directly liked to physical money supplies would serve to generate confidence in cryptocurrencies amongst the general public. In addition, it would eliminate the ever-feared value fluctuations. All of this would help to increase the number of transactions performed through this system.
How can we bring this idea down to Earth? With a smart contract: a software tool which executes automatically thanks to the Blockchain technology based, in this case, on the ERC20 standard: a free code created by Ethereum developers and one of the functionalities offered by the Banco Sabadell Open API for depositing and withdrawing money from a personal wallet. This type of contract "tokenizes" euros –tokens represent items from the real world within the Blockchain universe, like currencies, kilowatts or other measurements.
Thanks to tokenization, each user receives a cryptographic ID number, which guarantees that only this person will have access to the money linked to the wallet. For tighter security, only the bank can import money to accounts or transfer sums between IDs through the Open API.
Identity and security problems
On the other hand, Banco Sabadell detected that the creation of a smart contract generated several technical and legal issues. The most important has to do with the difficulty identifying the person behind each ID. To correct this, an identity program was added to the same network in order to verify that each ID corresponds with a specific user.
This ID also bestows a series of permissions and conditions which allow the entity to control and block funds, just like a traditional bank account. In this way, Banco Sabadell guarantees their ability to verify user identities through both traditional and digital means and prevent their modification.
The immutability of the transactions is one of Blockchain's greatest advantages. It can turn into a shortcoming, however, since, by making it impossible to eliminate or modify smart contracts generated within the network, errors cannot be corrected either.
To face this challenge, Banco Sabadell designed a system which blocks the execution of the contract or the activities of a specific user through permissions controls added to the identity management system.
The challenge didn't stop there. The operation of the Blockchain demanded further tightening of the screws. If it is not possible to apply modifications or corrections, how would one respond to a programming error or a contract which has been compromised? For this, they proposed the design of a version control and contract migration system in order to redirect all legitimate requests to the improved versions of these self-executing tools.
Regulation: to be defined
Although not directly covered during this event, regulation is another aspect which contributes to generating mistrust in Blockchains. To date, there is little information about the future regulatory framework for the Blockchain technology.
It is possible that it may still be too early, but efforts are already underway to clarify this point. One good example is LYRA, a Spanish Blockchain network between corporations which has just been launched to reduce the security issues and resolve the technical errors that are limiting the possibilities of this technology.
The European Commission has also made moves to define a single, regulated and safe market in Europe. The executive branch of the European Union (EU) has launched RegTech, a regulatory pilot project based on Blockchain.