What is a smart contract you might wonder? No, it’s not one that signs itself or that makes you a cup of coffee whilst you wait to sign.
It’s a type of program that can enforce itself. The term was coined in 1994 by computer scientist and cryptographer Nick Szabo. He described them as “a set of promises, specified in digital form. This includes protocols within which the parties perform on these promises.”
In other words, they’re self-executing pieces of code that execute when certain conditions are met.
Smart contracts are mainly found on blockchains. They have distributed ledgers that keep track of transactions without a central agency controlling them. But what exactly is a blockchain? And how does it work? Keep reading for answers to these questions and more!
1. The Term Was First Used by Computer Scientist and Cryptographer Nick Szabo
Smart contracts were first described in a 1994 paper by computer scientist and cryptographer Nick Szabo. In this paper, he introduced the idea of a “smart contract,” which would be able to enforce the performance of agreements between individuals without any third party needed.
Szabo is considered one of the most influential figures when it comes to blockchain technology and cryptocurrencies. He is also recognized for inventing Bit Gold, an early proposal for Bitcoin (although he didn’t use that term).
The term “smart contract” was originally used in Bitcoin’s whitepaper written by Satoshi Nakamoto. The concept was further developed by Vitalik Buterin after seeing Satoshi’s white paper and learning about how bitcoin works.
Vitalik Buterin is also known for being behind Ethereum. This is a great crypto investment. If you want to know more details about it be sure to follow the link.
2. Smart Contracts Are Programs That Can Enforce Themselves
A smart contract is a program that can enforce itself. Smart contracts are an example of self-executing contracts and follow the principle of immutability. This means that once the parties involved have agreed to a smart contract, it cannot be modified in any way.
Smart contracts are not legally binding, but they are being used in the real world. Like with all things new and revolutionary, people seem hesitant to use them because they don’t understand how they work or how reliable they could be.
However, there have been several successful examples where smart contracts have been used by businesses that wanted to automate their processes and save time and money on legal fees.
3. A Simple Example of a Smart Contract Is a Vending Machine
Smart contracts are used for many different things. A simple example of a smart contract is a vending machine. The vending machine can recognize when you’ve put money in, and it will only release your soda if you have done so.
This is an example of what we mean by “programmable money”: You can program the amount of money that goes into the vending machine and then program it so that once that amount has been deposited.
It will release your product without any human intervention whatsoever—or at least without any intervention by people whose job it is to accept payments from customers or check up on whether they did so correctly. Those tasks are left entirely up to the machines themselves now.
A more complicated but perhaps even more useful use case would be one where two parties want to buy some goods from each other.
However, both parties don’t trust the other to send their goods directly over just yet. Smart contracts can solve this issue.
Smart Contracts Are Great
So, what does the future hold for smart contracts? We do know is that there are still some kinks to work out before these contracts become widespread in our daily lives.
For example, if a smart contract malfunctions or isn’t programmed properly, it could lead to unintended consequences or even security breaches—and that would not be good for anyone!
However, with so much excitement around this new technology and so much money invested in it already (especially by governments), there’s no doubt that programmers will keep innovating until they get it right.
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