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Building A Better Society With Hybrid Smart Contracts

One of the strongest arguments for a global decentralized financial system is that the world’s existing financial system is designed to disporportionately benefit better-informed, better-resourced actors in predictable market conditions. Even so, the disadvantaged will still accept and participate in this system when it works like it’s supposed to, especially if it’s their only option.

But what happens when the system falls apart in unpredictable market conditions? And what happens when people are given the option to switch from brand-based to math-based agreements?   

These questions, among other philosophical topics, were explored in-depth by Chainlink Co-founder Sergey Nazarov and host Ash Bennington on a recent episode of Real Vision. 

Nazarov started off the discussion by clarifying the real question at the heart of the matter:

“Are smart contacts and blockchains better for society?”

If a fully transparent global financial system that gives individuals control over their own economic life instead of large companies that can ultimately “decide to do whatever they want” is better for society, Nazarov argued, then “smart contracts are 100% better for society in pretty much every single case.”

Avoiding Financial Crises By Forcing Transparency

“For those of us who covered the global financial crisis – 2007, 2008, 2009 – one of the questions that constantly came up was this question of, as you say, transparency,” Bennington said. “Who owned collateral? What were the conditions on that collateral? Had it been re-hypothecated?”

These questions are difficult to answer in a paper-based or brand-based system of agreements. However, because a system of cryptographic guarantees coded in smart contracts fundamentally ensures transparency, Bennington said, “The potential for smart contracts in general to solve these problems is incredibly great.” 

“You cannot make a financial product or a financial agreement on this infrastructure that does not force certain levels of inherent transparency,” Nazarov said. He hypothesized that the 2007/2008 financial crisis could have been softened or avoided entirely if individual mortgage applications were codified as hybrid smart contracts. 

Democratizing Economic Destinies By Eliminating Information Asymmetries 

Infrastructure that forces transparency eliminates information asymmetries so that everyone in a society can better manage their own financial risk. This is important for everyday people who don’t have financial analysts or lawyers to help them manage risk, and even more important for workers in emerging economies who need to manage business risk independent of their local governments.

“That in and of itself will change how certain emerging economies work,” Nazarov said. 

Bennington highlighted the philosophical perspective behind Chainlink and an “entire suite of protocols and technologies” aimed at making the world “a better, fair and more equal place.”

“That is actually the goal that we have here in our work on Chainlink,” Nazarov agreed. In a system that eliminates information asymmetries and ensures agreements execute based on definitive truth, “Whether you’re a big party in the contract or whether you’re a smaller party, you can still be treated fairly.”

Sign up for a free account to watch Ash Bennington’s full interview with Sergey Nazarov on the July 19th episode of Real Vision.

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