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Web3 Series - Smart Contracts: The Backbone of Web3 – and What Happens When AI Joins the Party

  • Writer: Alvin Lourdes
    Alvin Lourdes
  • Sep 19, 2024
  • 4 min read


September 19 2024

I recognize that we are down the technical rabbit hole the last few days however its important to understand what and how these technologies will help and can be used to solve the world's biggest and most challenging issues.


Let’s dive into one of the coolest and most transformative technologies that underpins Web3 – smart contracts. You’ve probably heard the term floating around, but let’s break it down so it makes sense, especially in comparison to how we used to handle things in Web2.


Imagine a vending machine. You put in the right amount of money, press a button, and the machine automatically gives you the snack you want. You don’t need to interact with a cashier or any third party. A smart contract works the same way but with digital agreements—whether it’s transferring ownership of assets, paying for services, or verifying information.


In simple terms, a smart contract is a self-executing contract where the terms of the agreement are directly written into lines of code. These contracts automatically execute, control, or document actions according to the terms, without needing a middleman.


Why Do Smart Contracts Underpin Web3?

In Web3, smart contracts are the foundation because they remove the need for trust in centralized authorities or intermediaries. They allow for decentralized applications (dApps), decentralized finance (DeFi), NFTs, and so much more. When you hear people talk about the power of decentralization, smart contracts are the ones doing the heavy lifting in the background.


By being trustless and automated, they bring several game-changing benefits to the table:

  • No Middlemen: No need for lawyers, banks, or brokers to facilitate or enforce an agreement.

  • Security: They live on the blockchain, making them transparent, secure, and immutable (once they’re deployed, they can’t be altered).

  • Efficiency: Instant execution as soon as conditions are met, which is faster and cheaper compared to traditional methods.


How Do We Do This Now (Web2)?

In the Web2 world, automating processes and agreements was a lot more complicated. We relied on computer programs and rules engines to handle certain tasks, but they needed centralized oversight and management. Let me give you a few examples:

  • Computer Programs: In Web2, businesses use custom software or programs to automate simple tasks. For instance, you might set up an automatic payment process for your bills. But, if something went wrong, you’d need to rely on a company or a central server to fix or mediate the issue.


  • Rules Engines (We all love these don't we?): Large organizations deploy rules engines to manage workflows or decision-making processes based on predefined conditions. For example, a bank’s rules engine might automatically approve loans if certain conditions are met, but the system always reported back to a central authority.

These systems worked, but they weren’t foolproof, and they relied on a central entity for final validation. Plus, they were vulnerable to manipulation, hacks, or inefficiencies because someone always had control over the backend.

In Web3, smart contracts take this automation to a whole new level by decentralizing it. Instead of relying on a single company or entity to manage the system, blockchain and smart contracts distribute that power across the network, making things more secure and tamper-resistant.


How Will Smart Contracts Evolve with AI?

Now, let’s talk about the exciting part: what happens when AI enters the world of smart contracts?

Right now, smart contracts are great at executing predefined conditions, but they’re still fairly rigid. You code in the rules, and the smart contract follows them exactly as written. But with AI integrated into smart contracts, we could see a massive leap in how flexible and intelligent these contracts become.


Here are a few potential ways AI could enhance smart contracts:

  • Dynamic Decision-Making: AI could allow smart contracts to adapt to more complex situations. For instance, instead of just executing based on a strict "if this, then that" model, an AI-driven smart contract could assess the context or past data to make more nuanced decisions.

  • Predictive Execution: AI could help predict outcomes and even trigger contract execution before certain conditions are met based on patterns and trends. Imagine a smart contract that manages supply chain logistics, using AI to foresee potential delays and automatically adjusting shipments or payment terms.

  • Contract Personalization: Right now, smart contracts are pretty standardized, but AI could allow them to evolve and tailor themselves to specific users or use cases. This could mean personalized contracts that automatically adjust based on individual needs or market conditions.

  • Self-Learning Contracts: AI-powered smart contracts could potentially learn over time, improving their own rules and conditions based on outcomes. This would be particularly useful in industries like healthcare or finance, where conditions change frequently.


Wrapping It All Up

Smart contracts are already reshaping the way we think about automation, trust, and decentralization in Web3. They're taking the power out of centralized institutions and putting it in the hands of the people. And as AI becomes a bigger part of the picture, we’re going to see contracts that are not only secure and automated but also smart and adaptable.

In a nutshell: smart contracts + AI = intelligent, adaptable systems that handle complex tasks and decisions without human intervention.


This is just the beginning of how Web3 and AI are going to change the game. What excites you most about this? Let's discuss!



 
 
 

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