Hybrid Smart Contracts Explained

This article was first published on Chainlink

Hybrid Smart Contracts Explained

Hybrid smart contracts combine code running on the blockchain (on-chain) with data and computation from outside the blockchain (off-chain) provided by Decentralized Oracle Networks. Hybrid smart contracts enable advanced forms of economic and social coordination that have the tamper-proof and immutable properties of blockchains yet leverage secure off-chain oracle services to attain new capabilities, such as scalability, confidentiality, order fairness, and connectivity to any real-world data source or system.

In the following article, we define the role that hybrid smart contracts play within emerging blockchain-based trust models and showcase the many decentralized services that Chainlink oracles provide to extend their capabilities. We then explain how this ultimately opens up a new generation of hybrid blockchain-based applications that have the required real-world properties needed to improve how society collaborates across nearly every major industry in the future.

How Oracles Extend Blockchain-Based Collaboration

At their core, blockchains are computing infrastructure designed to facilitate one key function: highly trustworthy collaboration. Trust is what gives participants a firm belief in the reliability, truth, ability, or strength of the collaboration. The most common way to establish trust in a collaborative process is a contract, which defines the legal and business obligations of each participant and the penalties/rewards of their actions. Unfortunately, the enforcement mechanism of contract obligations is far from perfect today, particularly when one participant has an asymmetrical advantage like unfair influence over the enforcement infrastructure, a more clear understanding of the fine print, or the time and capital to prolong the arbitration process. This has resulted in a contract system where belief in a counterparty’s brand becomes central to determining their trustworthiness.

Blockchains are a collaboration-enabling technology that replace brand-based trust with math-based trust by shifting the hosting, execution, enforcement, and custody mechanisms of a contract to software logic run across a decentralized ...

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