What is the point of using Smart Contracts instead of spinning up an EC2 instance and running the same code without blockchain?

Question

I'm trying to do a deep dive on Smart Contracts and Ethereum. I came across a very intriguing article on use cases of Smart Contracts in a Chain Link blog post. However, I still don't have a strong intuition for why there is so much enthusiasm for Smart Contracts. I don't understand what benefit they offer as opposed to spinning up an EC2 instance in AWS and writting the same program logic but using Stripe and a real fiat currency. Here are a couple of examples that are confusing to me:

My best intuition for the "promise" of Smart Contracts is:

1. Compared to using Stripe and a fiat currency, Ethereum can issue micropayments and has smaller transition fees.
2. Cryptocurrencies seem to be (potentially) more developer-friendly compared to using Stripe and a fiat currency for finance-related software/scripts. For Stripe, there is overhead to signing up and their API isn't the most intuitive whereas Solidity is a pretty pleasant programming language.
3. Compared to having to rely on the legal system to enforce a contract between two parties, which may be slower and more expensive, if all parties agree to a Smart Contract equivalent of the contract this is more efficient.

Things I am still confused on would like clarity on:

1. I have heard of a Decentralized Autonomous Organization that uses an Ethereum smart contract to implement a revenue-sharing agreement between its stakeholders (i.e. as people pay for the service with Etherium, the smart contract pays 33% to Person A, 33% to Person B, and 33% to Person C). Why could you not do the same thing using Stripe and an EC2 instance? Why get Etherium involved at all?
2. I have heard a lot of enthusiasm for how a lot of Internet of Things applications will have use cases for blockchain. For example, IoT sensors can be used to ensure that products in transit are properly maintained throughout the supply chain journey and connecting these IoT sensors to smart contracts that trigger payouts and issue fines depending on whether or not the IoT data confirms quality control standards were adhered to. Even for something as intriguing as this, what is the role of a Smart Contract here. Couldn't a third-party company offer these services and never need to get a Smart Contract involved?

Any intuition to point me in the right direction would be greatly appreciated.

Answer 1

I would claim that the biggest advantage (and, at the same time, disadvantage) of Ethereum compared to Stripe/fiat is decentralization.

If you setup some centralized service (Stripe?) to distribute money:

• The parties have to trust the centralized service. The service may be dishonest
• The centralized service may get blocked in some geographical regions
• The centralized service may go offline
• The centralized service may be coerced by governments to do various things

If you setup something similar with Etherem:

• If the parties trust the blockchain in general, they don't have to trust anything else. As long as the used smart contract has no bugs, everything works without trust.
• It's very hard to block access to Ethereum, anyone is free to use it
• Ethereum doesn't go offline
• Ethereum can't be coerced by anyone, since nobody owns Ethereum.

As for your other more specific questions:

• Ethereum isn't very good for micropayments (at least the main layer, Layer2 is much better for it) because the transaction costs are quite big.
• Ethereum is not very developer-friendly, at least currently. The environment is quite complicated and tooling is not so good, yet.
• Whether to use EC2 or Ethereum: users would need to trust your EC2 instances and Stripe
• The public Ethereum blockchain and IoT are not very good friends, due to high transactions costs. But Ethereum is also used in private blockchains where there are basically zero transaction costs, and those are valid options for IoT.