20 September 2022
When we think about blockchain technology, we tend to think of cryptocurrencies. In the last five years, crypto has been in the news almost all the time. Crypto prices have had somewhat of a roller coaster ride over this period and there's been a lot of hype as millionaires and even billionaires have been made.
But blockchain is not just about cryptocurrency. The most important characteristic of blockchain technology is the fact that it is controlled by every person that has an interest in it. Every block of data in the chain has been derived from the previous block and has been verified by the owners in the chain.
Each data block is timestamped and cannot be amended. Any attempt at amending a block will create a new block with a new timestamp. This makes blockchain data very secure and presents several other use cases where forgeries, unauthorized copies or fraudulent changes have historically been a problem.
The concept of blockchain technology goes as far back as 1982 when cryptographer David Chaum published a treatise entitled, “Computer Systems Established, Maintained, and Trusted by Mutually Suspicious Groups”. The idea of timestamping is attributed to Stuart Haber and W. Scott Stornetta in 1991.
Smart contracts also date back surprisingly far. In the early 1990s, Nick Szabo, a computer scientist and cryptographer, introduced the idea of "a set of promises, specified in digital form, including protocols within which the parties perform on these promises". It was probably inevitable that these two concepts would come together into smart contracts as we know them today.
Smart contracts have become one of the leading use cases for blockchain technology. Now, with the word contract, you're probably thinking of lawyers and thick wads of paper filled with complicated language. Well, not quite. An Ethereum smart contract is really just some data, albeit very specific data. This data contains any number of conditions or parameters and resulting actions or outcomes. The contract self-executes. In other words, it will automatically launch the actions or instructions as soon as all conditions are fulfilled. No further intervention is necessary, and no intervention can alter the result. An Ethereum smart contract can be many different things. It can be a simple agreement between parties, just like a paper contract. Or it can be a set of conditions and outcomes that are connected with other smart contracts to form complex processes.
Now we come to another layer of this technology – vesting. The Merriam-Webster dictionary provides this definition of the verb “to vest”. Firstly, “to grant or endow with a particular authority, right, or property (example: the plan vests workers with pension benefits after 10 years of service)”.
How does this tie into a smart contract, you ask? Simply put, an Ethereum vesting smart contracts solution is one that releases the benefit to the recipient at some point in the future or in tranches over a period of time. This period of time can be determined purely by the passage of time, or it could be determined by certain milestones or events.
Tokenomics is another buzzword that we can thank blockchain technology for. The term refers to the economics of a token or a coin. This includes factors like supply and demand, schedules for creation, distribution or burning of tokens, incentive schemes and the like. Tokenomics are the “monetary policy” rules for a token or coin.
The reason we build tokenomics rules into the token is to encourage or discourage certain investor behaviour and to ensure price stability. A developer of a new cryptocurrency requires capital to fund the development. These funds are obtained from early investors. As has often happened in the past, when the coin is launched, some of these early investors may cash out immediately and sell all or most of their holdings. The massive sell-off creates an oversupply in the market and drives the price down. Often, the price fails to claw back the loss because investor confidence has been destroyed.
Vesting smart contracts are important in tokenomics. An Ethereum vesting smart contracts solution would prevent such a scenario as the tokens or coins purchased by the investor could be locked in and released over time. This would throttle the supply of tokens on the exchanges and avoid sharp price swings. Vesting smart contracts can be used in many other applications as well. For instance, it could be tied into software development or construction project and used to automate the progress payments. Companies can use them to manage share incentive schemes or other consumer loyalty programs. The possibilities are really only limited by imagination.
As we have said, the possibilities are practically endless. Any person or organization that plans to transfer value to another party in a controlled manner can benefit from a vested smart contract.
There are, however, a few things to consider before jumping into creating a vesting smart contract. Once the contract has been released, it cannot be amended. This is the whole principle of blockchain. It is critically important that this contract be perfect. For this reason, you should never attempt to go it alone. Make use of a reputable and experienced Ethereum vesting smart contracts solution provider. They have experts that know what to look for and how to test everything. They can ensure that your smart contract does exactly what you want it to do.
With a full suite of smart contract solutions, NextHash is your partner of choice. From off-the-shelf applications to bespoke cryptocurrency development to management of your blockchain platform, NextHash has you covered.
The NextHash financial operations are fully regulated under EU legislation and worldwide operating unit are licensed in their jurisdictions or in the process of obtaining licenses. You can trust NextHash to deliver.