Blockchain Technology - What are Hybrid Smart Contracts?

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This is a brief introduction to the concept of Hybrid Smart Contracts, as part of the Chainlink guide of the LeoFinance @crypto-guides initiative.

Before getting deeper in Hybrid Smart Contracts themselves, I think it's important to talk a little about what is the problems that they try to solve.

Why are Hybrid Smart Contracts necessary?

Smart contracts are regarded as a very efficient solution for contracts nowadays. Because they run on a Blockchain, they are immutable, easily verifiable and are enforced by code, which completely removes the unfair influence that one of the involved parties usually enjoys on traditional contract systems.

However, being on a Blockchain also brings a limitation to them, as smart contracts can only read data that exists on the Blockchain. To resolve that problem, Oracles were introduced to the crypto ecosystem to translate off-chain to on-chain data.

The issue with that approach is that an oracle is a centralized entity, so it can be made faulty and compromise the very core concept of smart contracts.

And that's exactly why hybrid smart contracts can be a perfect solution, connecting the Blockchain network to a Decentralized Oracle Network (DON)

What are Smart Hybrid Contracts?

A hybrid smart contract is an application made of two key components:

  1. Smart contract— A code that runs exclusively on the Blockchain

  2. Decentralized oracle network— A distributed network of oracle nodes that provide information from off-blockchain data sources to on-blockchain smart contracts.

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Essentially, what smart hybrid contracts do is combine the best features of each of the environments.

This excerpt from the Chainlink blog is really helpful to understand the distinct roles of on-chain and off-chain components:

On-Chain: Blockchain

  • Maintain a persistent ledger that provides authoritative custody of users’ assets and interacts with private keys
    Execute final settlement by processing irreversible transactions that transfer value between users

  • Provide dispute resolution and guardrails to secure the proper functioning of the off-chain services performed by a DON

Off-Chain: Decentralized Oracle Network

  • Fetch, validate, secure, and deliver data from external APIs to smart contracts running on blockchains and Layer-2 solutions
    Perform various types of computations for smart contracts running on blockchains and Layer-2 solutions

  • Relay outputs of smart contract code to other blockchains or external systems

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Use cases for Hybrid Smart Contracts

By leveraging all the reliability and scalability of the Blockchain network and integrate off-chain data through a DON, hybrid smart contracts can potentially be applied to many different industries. Some say they can even completely replace the legal system.

Since they are enforced by the Blockchain, there is no need for an external court system, making them a lot cheaper and enabling safe peer-to-peer transactions. Also, they are not influenced by local law systems, which completely eliminates the headache that is navigating different court systems on multinational agreements.

Final thoughts

Smart Hybrid Contracts have the potential to be a perfect solution to most, if not all, kinds of transactions in the future and they could even replace the legal system as we know it, making global interactions faster, cheaper and safer.

Chainlink is looking to be the leading team in hybrid smart contracts so if you are interested in building hybrid smart contracts applications, it can be a good place to start.

As stated at the beginning of this post, this is an introductory post to Hybrid Smart Contracts. If you want to delve deeper into the technical aspects of this subject, make sure to visit Chainlink's website for more information.

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9 comments
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This is an excellent hybrid smart contracts explainer that will fit nicely just underneath the how does Chainlink crypto (LINK) work section of our guide.

Thank you :)

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Chainlink is basically infrastructure. Like Ethereum, it is fundamental to running all of these smart contracts on the blockchain. This is why I own it. To me, it is one of the core technologies to the entire crypto system.

That said, their token really doesn't have much of a use-case. It will be interesting to see what, if any, value gets placed on this entity down the road. The tech is vital to many of the networks out there, but the token itself doesn't really do much.

I'm betting that they eventually figure out a way to make it more valuable. Time will tell.

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I didn't know much about Chainlink at all, but after participating on their recent Smart Contracts Summit I got more interested. It looks like they are on a promising path with the hybrid contracts and the rest of the stuff on Chainlink 2.0

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Thanks for the interesting article about blockchain technology. For the link blockchain can greatly improve supply chains by enabling faster and more cost-efficient delivery of products, enhancing products' traceability, improving coordination between partners, and aiding access to financing.

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