Smart Contracts

What Is a Smart Contract?

A smart contract is a self-executing contract with the terms of the agreement among buyer and seller being straightforwardly written into lines of code. The code and the agreements contained in that exist across a distributed, decentralized blockchain network. The code controls the execution, and transactions are identifiable and irreversible.

Smart contracts permit confided in transactions and agreements to be carried out among divergent, anonymous gatherings without the requirement for a central authority, legal system, or outside enforcement mechanism.

While blockchain technology has come to be considered principally as the foundation for bitcoin , it has advanced a long ways past supporting the virtual currency.

What You Need to Know

• Smart contracts are self-executing lines of code with the terms of an agreement among buyer and seller consequently confirmed and executed through a computer network.
• Nick Szabo, an American computer scientist who developed a virtual currency called "Piece Gold" in 1998, defined smart contracts as computerized transaction conventions that execute terms of a contract.
• Smart contracts conveyed to blockchains render transactions discernible, transparent, and irreversible.

How Smart Contracts Work

Smart contracts were first proposed in 1994 by Nick Szabo, an American computer scientist who concocted a virtual currency called "Piece Gold" in 1998, completely 10 years before the creation of bitcoin. As a matter of fact, Szabo is frequently supposed to be the real Satoshi Nakamoto, the anonymous designer of bitcoin, which he has denied.

Szabo defined smart contracts as computerized transaction conventions that execute terms of a contract. He wanted to broaden the usefulness of electronic transaction methods, like POS (point of sale), to the digital realm.

In his paper, Szabo likewise proposed the execution of a contract for synthetic assets, like derivatives and bonds. Szabo stated: "These new securities are shaped by consolidating securities (like bonds) and derivatives (options and futures) in a wide assortment of ways. Exceptionally complex term structures for payments can now be incorporated into normalized contracts and traded with low transaction costs, due to computerized analysis of these complex term structures."

In simple words, he was alluding to the sale and purchase of derivatives with complex terms.

Large numbers of Szabo's forecasts in the paper materialized in manners going before blockchain technology. For instance, derivatives trading is currently generally directed through computer networks utilizing complex term structures.