What areHybrid Smart Contracts?

Before we write about Hybrid Smart contracts, it is essential to provide a brief introduction of smart contracts. Smart contracts are codes that exclusively support and govern blockchain transactions. However, These codes allow blockchains to perform a task when predetermined conditions are met. It is usually used to automate the execution of an agreement on the blockchain. However, it can also help automatic workflow trigger the next event when the process matches the conditions.

Limitations of Smart Contracts

Blockchains usually work in a narrow spectrum. In most cases, the number of participants is limited. So, blockchain is not a good choice if too many conditions are met. It is so because smart contracts cannot contain all the necessary data and guidelines. It’s impossible to make a smart contract online that executes all the actions without needing external help. Here’s why smart contract development services are the best option.

Hybrid Smart Contracts Overview

It is easy to guess now that smart contracts can do simple calculations, but they fail when they’re complex. That’s why smart contracts are combined with decentralized oracle networks. Hybrid smart contracts connect off-chain data with on-chain information.

As a result of collaboration with a decentralized oracle network, Hybrid smart contracts become more capable of executing more complex tasks. The off-chain data of oracle networks make smart contracts perform more complex tasks. However, it frees the smart contracts that were limited by the codes on the blockchain.

Oracles offer blockchains secure gateways to the external world. This helps smart contract applications verify external events, trigger an action on any external system, and use calculations that are not possible to do on-chain.

Composition of Hybrid Smart Contracts

There are two parts of a Hybrid Smart contract. These include:

• A smart contract
• Decentralized Oracle network

A combination of the two creates a secure Hybrid smart contract. The components create a seamless system where users can participate and complete transactions in unique ways. It helps the smart contract communicate with the Oracles, making the codes work more powerfully.

In hybrid smart contract services, both parts are synchronized, and this creates an application none of the components can create alone. Smart contracts usually work singly in a tightly secure blockchain environment, while oracles work in an external world with innumerable capabilities. The combination of two results in a smart contract way more productive than the original.

Decentralized Oracle networks(DONs) work in an off-chain isolated environment to provide unmatched security and capabilities to the smart contract. Each DON offers a customizable decentralized service to a specific application. That’s why all other blockchain applications are resistant to the performance of the DON. DONs are not only good for security purposes, but they also offer verifications for very complex problems.

How Hybrid Smart contracts combine on-chain and off-chain calculations?

To find the differences between on-chain and off-chain components, let find their specific roles:

Blockchain (On Chain)

• Maintains a perpetual ledger providing authoritative custody of the assets and interacts with private keys.
• Performs final settlement by managing irreversible transactions that exchange value between the users
• Provides dispute resolution and measures to secure the proper functionality of the DON.

Decentralized Oracle network (off-chain)

• Collect, check, secure and transfer data from the external APIs to smart contracts that run on Layer 2 solutions and blockchains.
• Do the computations for smart contracts
• Relay the outputs for smart contract code to external systems or blockchains.

Industries Impacted by Hybrid Smart Contracts

As obvious, DONs offer very high scalability, security and uniqueness to smart contracts. This makes many activities possible that were impossible. Here are some industries that can use hybrid smart contracts.

• Finance

In global financial organizations, smart contracts can establish the rules of engagement connecting both the buyer and seller, while DONs can settle markets using external data. Other areas where DONs include fair transaction ordering, KYC verification, and faster off-chain processing.

• Supply Chain

In supply chain management, smart contracts can outline the payment terms, and penalties. While DONs can monitor quality control, track shipments, verify customer credentials, and start settlement of payments.

• Insurance

In this industry, smart contracts can show the premiums and claim processes, while DONs can interconnect the contract to external data feeds. However, DONs can also fetch complex risk assessment outputs, do risk assessment calculations, and verify IDs confidentially.

• Marketing

Marketing campaigns that distribute rewards automatically in real-time based on data-driven performance objectives. Smart contracts can define a tiered payout model with specific milestones, while DONs can validate that performance metrics were hit and provide confidential computations on customer data and wider market trends for advanced campaign assessments.

Conclusion

DONs are capable of providing all the services that blockchains do not inherently support, as well as bootstrapping off chain services through cryptographic security guarantees. By combining smart contracts with decentralized systems, a broader vision of collaboration can be realized. As a result, blockchains and non-blockchain infrastructure can seamlessly interact in a secure, reliable, and or universally connected manner.

Gyan Solutions is one of the top leading blockchain development firm to build hybrid smart contract applications today and need external data or computation.