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LEGAL DICTIONARY

Smart Contracts

What Is a Smart Contract?

A smart contract is a computer program that automatically executes when certain terms or conditions of an agreement are met. It is stored on a decentralized blockchain network, with the buyer and seller terms being written directly into code. The most popular smart contract coding language is Solidity, which is heavily inspired by JavaScript.

Smart contracts are legally binding and enforceable if they follow contract law, and they can be used to automate workflows, triggering an action when predetermined conditions are met. By using one of these contracts, all participants in an agreement can be instantly aware of the outcome, thus avoiding any involvement from intermediaries or time loss.

Some of the largest cryptocurrencies in the world are smart contract cryptos, including Ethereum (ETH) and Cardano (ADA). Keep reading our explainer guide to learn more about smart contracts as well as their benefits and applications.

Smart Contracts History

Nick Szabo, an American computer scientist, cryptographer, and legal scholar, is considered the father of smart contracts, first proposing them in 1994. He called them “smart” because he believed that they are “far more functional than their inanimate paper-based ancestors”.

In his paper, Szabo defined smart contracts as a “set of promises, specified in digital form, including protocols within which the parties perform on these promises.

He also invented a cryptocurrency called “Bit Gold” in 1998, 10 years before the invention of bitcoin. Rumors have even circulated about him being the real Satoshi Nakamoto, the inventor of bitcoin, who has remained anonymous to this day. However, Szabo has denied these claims.

When inventing smart contracts, Szabo aimed to digitalize electronic transaction methods, such as point of sale (POS). He also proposed the execution of contracts for synthetic assets, such as bonds and derivatives, and for the transferring of digital assets between parties under set conditions.

Applications of Smart Contracts

Smart contracts can be used for a variety of different purposes and in a wide range of fields, from supply chain management and healthcare to gaming and art. Users of all types can engage in peer-to-peer transactions using smart contracts, and these use cases are only expected to expand with time.

Below are some notable uses of smart contracts today:

  • Government voting systems: To protect the voting system from manipulation. Votes using smart contracts are more difficult to decode because they are ledger-protected. They may also increase voter turnout by simplifying the voting process.
  • Healthcare: To store encoded patient health records with private keys. Research can also be conducted more confidentially and securely when using smart contracts.
  • Supply chain: To automate payments and inventory management, decreasing the necessity of multiple channels of approvals.
  • Financial services: To perform bookkeeping, routing, payment transfer, and error-checking. They can also increase transparency for shareholders and assist in trade clearing or protecting against the infiltration of accounting records.
  • International trade: To reduce friction and risk while simplifying the trade process and expanding trade opportunities for different stakeholders.
  • NFT Ticketing: A person can buy an NFT-based ticket programmed through a Smart Contract. After receiving payment, the Smart Contract triggers the issuance of an NFT ticket, which is then sent to the buyer from the ticketing database. Smart Contract programmed NFT-tickets can improve the ticketing experience of both attendees and organizers of events through the benefits of Blockchain technology by preventing scams, reducing costs of sale, and accelerating ticket production and transactions.
  • NFT Automatic Payment System: Smart contracts can program NFTs to automatically pay an artist every time their digital art is sold or every time a digital plot of land is sold.

Benefits of Smart Contracts

Smart contracts are beneficial to both individuals and businesses in a number of different ways. Due to the decentralized nature of blockchain contracts, they are more autonomous and no outside party is required in the process.

In addition, blockchain technology provides definitive proof of transactions through unalterable ledgers. These rely on encryption and operate as peer-to-peer transaction systems, making them much more secure. There is also more transparency as transaction records are shared across participants, making the altering of information less likely.

Smart contracts are also faster due to the lack of intermediaries. While traditional contracts can take 1-3 days to execute, smart contracts usually take a matter of minutes. It’s also much less likely to require a lawyer with a smart contract, and virtual signatures can be used.

On the other hand, normal contracts may often require a physical presence and an in-person signature to be valid. Smart contracts are also more accurate and cheaper as the process is automated, meaning no manual remittances, less human interaction, and a significant decrease in errors.

Furthermore, smart contracts duplicate all transactions, meaning that data storage device failures are less impactful as each party involved has a record of the transaction.

Helpful Resources:
IBM - Smart contracts defined
Mondaq - United States: Smart Supply Chains Using Smart Contracts
Ethereum - Smart Contracts

What Is a Smart Contract?

A smart contract is a computer program that automatically executes when certain terms or conditions of an agreement are met. It is stored on a decentralized blockchain network, with the buyer and seller terms being written directly into code. The most popular smart contract coding language is Solidity, which is heavily inspired by JavaScript.

Smart contracts are legally binding and enforceable if they follow contract law, and they can be used to automate workflows, triggering an action when predetermined conditions are met. By using one of these contracts, all participants in an agreement can be instantly aware of the outcome, thus avoiding any involvement from intermediaries or time loss.

Some of the largest cryptocurrencies in the world are smart contract cryptos, including Ethereum (ETH) and Cardano (ADA). Keep reading our explainer guide to learn more about smart contracts as well as their benefits and applications.

Smart Contracts History

Nick Szabo, an American computer scientist, cryptographer, and legal scholar, is considered the father of smart contracts, first proposing them in 1994. He called them “smart” because he believed that they are “far more functional than their inanimate paper-based ancestors”.

In his paper, Szabo defined smart contracts as a “set of promises, specified in digital form, including protocols within which the parties perform on these promises.

He also invented a cryptocurrency called “Bit Gold” in 1998, 10 years before the invention of bitcoin. Rumors have even circulated about him being the real Satoshi Nakamoto, the inventor of bitcoin, who has remained anonymous to this day. However, Szabo has denied these claims.

When inventing smart contracts, Szabo aimed to digitalize electronic transaction methods, such as point of sale (POS). He also proposed the execution of contracts for synthetic assets, such as bonds and derivatives, and for the transferring of digital assets between parties under set conditions.

Applications of Smart Contracts

Smart contracts can be used for a variety of different purposes and in a wide range of fields, from supply chain management and healthcare to gaming and art. Users of all types can engage in peer-to-peer transactions using smart contracts, and these use cases are only expected to expand with time.

Below are some notable uses of smart contracts today:

  • Government voting systems: To protect the voting system from manipulation. Votes using smart contracts are more difficult to decode because they are ledger-protected. They may also increase voter turnout by simplifying the voting process.
  • Healthcare: To store encoded patient health records with private keys. Research can also be conducted more confidentially and securely when using smart contracts.
  • Supply chain: To automate payments and inventory management, decreasing the necessity of multiple channels of approvals.
  • Financial services: To perform bookkeeping, routing, payment transfer, and error-checking. They can also increase transparency for shareholders and assist in trade clearing or protecting against the infiltration of accounting records.
  • International trade: To reduce friction and risk while simplifying the trade process and expanding trade opportunities for different stakeholders.
  • NFT Ticketing: A person can buy an NFT-based ticket programmed through a Smart Contract. After receiving payment, the Smart Contract triggers the issuance of an NFT ticket, which is then sent to the buyer from the ticketing database. Smart Contract programmed NFT-tickets can improve the ticketing experience of both attendees and organizers of events through the benefits of Blockchain technology by preventing scams, reducing costs of sale, and accelerating ticket production and transactions.
  • NFT Automatic Payment System: Smart contracts can program NFTs to automatically pay an artist every time their digital art is sold or every time a digital plot of land is sold.

Benefits of Smart Contracts

Smart contracts are beneficial to both individuals and businesses in a number of different ways. Due to the decentralized nature of blockchain contracts, they are more autonomous and no outside party is required in the process.

In addition, blockchain technology provides definitive proof of transactions through unalterable ledgers. These rely on encryption and operate as peer-to-peer transaction systems, making them much more secure. There is also more transparency as transaction records are shared across participants, making the altering of information less likely.

Smart contracts are also faster due to the lack of intermediaries. While traditional contracts can take 1-3 days to execute, smart contracts usually take a matter of minutes. It’s also much less likely to require a lawyer with a smart contract, and virtual signatures can be used.

On the other hand, normal contracts may often require a physical presence and an in-person signature to be valid. Smart contracts are also more accurate and cheaper as the process is automated, meaning no manual remittances, less human interaction, and a significant decrease in errors.

Furthermore, smart contracts duplicate all transactions, meaning that data storage device failures are less impactful as each party involved has a record of the transaction.

Helpful Resources:
IBM - Smart contracts defined
Mondaq - United States: Smart Supply Chains Using Smart Contracts
Ethereum - Smart Contracts