Smart contracts are the key to realizing the full potential of blockchain technology; a smart contract may one day secure your house on a blockchain, assure your digital identity, enable easy international payments, and much more.

But for blockchain as an industry to truly build useful and valuable systems, smart contracts need to be trustworthy to the point where they can be assumed to be always correct — and until we reach that point, the industry will struggle to reliably represent anything of value using blockchain technology.

Smart contracts have evolved over the years into a core technology that holds significant potential. Here at Kadena, we built our smart contract language Pact and platform from the ground up to be a system that users can trust.

The term ‘smart contracts’ was first introduced by Nick Szabo in the late 1990’s where he defined them as:

Bitcoin, as the first decentralized cryptocurrency, offers scripts written in a minimal, non-Turing complete bytecode language. These scripts cannot function as complete smart contracts — their primary usage is allowing a custody check to succeed or fail on a given Bitcoin amount (an “output”). Programmers are able to timestamp other transactions using extra data fields in the transaction with infinitesimal amounts of Bitcoin, but these were considered “hacks” and indeed, custom scripts are prohibited by production Bitcoin systems. These limitations motivated the eventual creation of Ethereum.

Ethereum sought to expand the power of Bitcoin scripts to allow users to create arbitrary smart contracts. Bitcoin expresses scripts in bytecode, a low-level encoded format that was intended to be small, safe, fast and deliberately limited to keep transactions safe. Ethereum enlarges this bytecode significantly into a “virtual machine” that resembles the machine code that runs on a primitive computer, and indeed early marketing for Ethereum called it a “World Computer.” Contracts coded in Solidity (Ethereum’s smart contract language) are compiled into long streams of bytecode that are installed and executed on the Ethereum Virtual Machine (EVM). Solidity (and the EVM) is Turing-complete, meaning it has the potential to compute any computer algorithm given availability of sufficient time and resources. Thus, Ethereum smart contracts opened up greater potential use cases for blockchain technology beyond what Bitcoin scripts could offer. These use cases included initial coin offerings, tokenized securities and assets, prediction markets, and immutable voting, to name a few.

However, the added versatility offered by Solidity smart contracts comes at a great cost in safety and complexity, jeopardizing the security and reliability seen in Bitcoin. Some pressing issues faced by Ethereum’s Turing complete smart contracts include:

Furthermore, Ethereum smart contracts face great difficulties when it comes to extracting data out of smart contracts and general usability of the system. In order for smart contracts to achieve widespread adoption, data held in smart contracts will need to be able to interact and integrate with existing database systems and be significantly easier to read, write, and understand.

To make matters worse, the high level of human interaction required to create an Ethereum smart contract greatly increases the possibility of human error, and therefore critical bugs. The risks and issues faced in Ethereum smart contracts, coupled with scalability issues, will stifle blockchain’s long term potential.

At Kadena, we believe the following key principles are required to achieve wider adoption of smart contracts:

Pact is an open-source Turing-incomplete smart contract language that has been purpose-built with blockchains first in mind. Pact focuses on facilitating transactional logic with the optimal mix of functionality in authorization, data management, and workflow.

We strongly believe smart contracts should only execute on the intent of the programmer. Therefore, we have designed a Pact smart contract to execute only on what it has been programmed to do, which offers a much safer environment for conducting business.

Pact code is executed directly on the ledger and is stored in a human-readable format as an immutable transaction. This means Pact smart contracts can be openly verified by anyone.

Smart contracts are more than just code, they also serve as core business processes, and making smart contract code human-readable is critical for accessibility from non-developers. This includes technical executives, lawyers, and other business professionals that are required to read, review, and verify the intent and execution of a smart contract.

We consider Pact a spiritual successor to Bitcoin scripts — Bitcoin scripts served as inspiration for Pact and they share several similarities, one of which is that they are both Turing incomplete, meaning they do not allow recursion or infinite loops. In Pact, any recursion that is detected will cause an immediate failure and terminate all running code. This feature significantly reduces any potential attack vectors that may be present in smart contracts.

Unlike Solidity-based contracts, Pact smart contracts can be updated, changed, or fixed through an update mechanism to declare new versions of a smart contract that are applied only once the new code has been successfully executed. Any errors will automatically roll back the smart contracts to their previous state and abort making any new changes. This feature allows developers to fix potential errors and for contracts with multiple parties to update their agreements to represent evolutions in business logic.

Similarly to how understanding smart contract code should not be confined to only developers, we also believe smart contract data should not be stored only on-chain. This tenet is why Pact has API functionality so that data stored in smart contracts can be extracted into external databases via SQL.

Pact also comes equipped with a powerful validation tool suite in the form of formal verification. Pact uses Z3, an open source tool developed by Microsoft, to mathematically verify and test for bugs present in code.

The formal mathematical verification system analyzes code with the use of proofs to test an intention that has been programmed into a smart contract. The feature allows developers to prove whether certain conditions can or cannot be met for a smart contract given all possible inputs that are available.

Formal verification greatly reduces vulnerabilities due to human error by ensuring that unintended outcomes and consequences cannot happen in Pact smart contracts which significantly reduces the potential attack vectors for malicious entities to exploit in a trustless environment.

For blockchain to truly realize its transformative potential, we need to commit to providing developers and users with smart contracts that they know they can trust. Pact has been designed from the ground up to offer developers a simple way to implement secure and bug-free smart contracts. Pact ships with a feature-rich REPL which allows for rapid, iterative development, incremental transaction execution, and environment and database inspection. Developing with Pact code is meant to be fun and productive; please visit our Github and Read The Docs page to learn more and try Pact out immediately using your browser.

Developers can now create next-generation smart contracts that open the door for tangible uses that require representing real value and assets on a blockchain. We will see new projects using Pact to disrupt incumbent industries, forever changing in unforeseen ways how we conduct business.