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The Future of Smart Contracts: Positive Social Innovation or Criminal Activity?

Smart contracts, a feature of “Bitcoin 2.0” technologies such as Ethereum, could empower criminals with sophisticated trustless collaboration means, the prestigious MIT Technology Review reports.

Cornell University professors Ari Juels and Elaine Shi, with University of Maryland researcher Ahmed Kosba, present several cyber-crime scenarios enabled by smart contracts in the recently published paper “The Ring of Gyges: Using Smart Contracts for Crime.”

The Ring of Gyges is a mythical magical ring mentioned in Plato’s Republic which grants its owner the power to become invisible at will. Of course, criminals wearing the invisibility ring would commit all sorts of crimes beyond the reach of law enforcement.

Shi joined the Computer Science Department at Cornell University in August 2015. Shi was recently awarded a large National Science Foundation (NSF) research grant for cyber-security research, Bitcoin Magazine reported in July. Shi, formerly at the University of Maryland and the Maryland Cybersecurity Center, researches cryptocurrencies and “smart contracts” – computer programs that can automatically execute the terms of a contract.

“We illuminate the extent  to  which  these  new  cryptocurrencies, by  enabling criminal  activities  to  be  conducted  anonymously and  with  minimal  trust assumptions,  may  fuel  new  criminal ecosystems,” note the researchers. “Specifically, we show how  what  we  call criminal smart contracts (CSCs)  can facilitate  leakage  of  confidential information,  theft  of  cryptographic  keys,  and various  real-world crimes (murder, arson, terrorism).”

The examples developed by the researchers work on the recently launched smart contract platform Ethereum.

For example, malicious agents could anonymously hire hackers to compromise a website by creating a smart contract that, upon automatic verification that an agreed code string has been added to the hacked website, pays the hackers a reward in cryptocurrency. The method doesn’t require that the two criminal parties trust each other.

Similarly, self-executing smart contracts could be used in “assassination markets.” Criminals could place a smart contract for the assassination of a target, and the contract could pay the murderer automatically upon verification (for example by automatically scanning news wires) that the target has been murdered at an agreed place and time. Again, the method doesn’t require that the criminals trust each other.

The researchers participate in the Initiative for Crypto-Currencies and Contracts(IC3).

“Emerging smart  contract  systems  over  decentralized  cryptocurrencies  allow mutually  distrustful  parties  to  transact safely with each other without trusting a third-party intermediary,” notes a related IC3 paper.

“In some ways this is the perfect vehicle for criminal acts, because it’s meant to create trust in situations where otherwise it’s difficult to achieve,” says Juels.

Ethereum CTO Gavin Wood notes that the aspects of Ethereum that make it suitable for “criminal smart contracts” can also permit all sorts of positive, radical social changes. For example, Ethereum smart contracts could permit creating decentralized versions of services such as Uber, and handling the payments without the need for a company in the middle. Such decentralized peer-to-peer (P2P) systems would be nearly impossible to legislate against.

Ethereum communications officer Ken Kappler made similar examples of how smart contracts could permit developing P2P versions of services such as eBay and AirBNB, which work without intermediaries. In general, intermediaries have been needed to operate exchange networks where the users don’t necessarily trust each other, but exchange networks built around self-enforcing smart contracts don’t require trust, and therefore don’t require intermediaries.

Therefore, smart contracts represent a disruptive innovation with a huge potential. In 2001, legendary cryptographer Nick Szabo spoke of smart contracts that solved the problem of trust by being self-executing, and property embedded with information about who owns it. For example, the key to a car might only operate if the car has been paid for according to the terms of a contract.

“The potential for Ethereum to alter aspects of society is of significant magnitude,” said Wood. “This is something that would provide a technical basis for all sorts of social changes, and I find that exciting.”

Photo Tim Pierce / Flickr (CC)

Giulio Prisco


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