Of the many misconceptions about the blockchain, one of the most popular ones is that smart contracts cannot fail because blockchains are secure and immutable. While it is true that security and immutability are the fundamental features of blockchains, applications built on them are not necessarily bound by this rule. This means that while the underlying blockchain might be indestructible, smart contracts built on it can sometimes fail. To understand this, we must distinguish between the ledger layer and the logic layer.
1. The “Logic is Law” Problem
Smart contracts are actually code that is automated on the blockchains. Like all code, the existence of bugs is almost inevitable, and if not caught in time, the bug will be executed with the contract perfectly. This can sometimes lead to contract execution leading to rather unwanted results.
2. The Oracle Trap
Most modern smart contracts require external data to work properly. This can sometimes be something like the result of a sports match or the price of Bitcoin. The protocols in charge of getting this external data for the blockchain are known as Oracles and if an Oracle provides inaccurate data, it can lead to smart contract execution based on false information. This can result in instances like selling bitcoin for a fraction of the cost.
Disclaimer: BFM Times acts as a source of information for knowledge purposes and does not claim to be a financial advisor. Kindly consult your financial advisor before investing.
