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Concept
Smart contract
Summary
A smart contract is a computer program or a transaction protocol that is intended to automatically execute, control or document events and actions according to the terms of a contract or an agreement. The objectives of smart contracts are the reduction of need for trusted intermediators, arbitration costs, and fraud losses, as well as the reduction of malicious and accidental exceptions. Smart contracts are commonly associated with cryptocurrencies, and the smart contracts introduced by Ethereum are generally considered a fundamental building block for decentralized finance (DeFi) and NFT applications.
Vending machines are mentioned as the oldest piece of technology equivalent to smart contract implementation. The original Ethereum white paper by Vitalik Buterin in 2014 describes the Bitcoin protocol as a weak version of the smart contract concept as originally defined by Nick Szabo, and proposed a stronger version based on the Solidity language, which is Turing complete. Since Bitcoin, various cryptocurrencies have supported programming languages which allow for more advanced smart contracts between untrusted parties.
A smart contract should not be confused with a smart legal contract, which refers to a traditional, natural-language, legally-binding agreement that has selected terms expressed and implemented in machine-readable code.
Smart contracts were first proposed in the early 1990s by Nick Szabo, who coined the term, using it to refer to "a set of promises, specified in digital form, including protocols within which the parties perform on these promises". In 1998, the term was used to describe objects in rights management service layer of the system The Stanford Infobus, which was a part of Stanford Digital Library Project.
Regulation of algorithms
A smart contract does not typically constitute a valid binding agreement at law, although a smart legal contract is intended to be both executable by a machine and legally enforceable.
Official source
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