What is a Smart Contract?
A smart contract is a digitally automated legal agreement between a buyer and seller, where the terms are embedded in lines of code and stored on a decentralized blockchain network. The code not only controls the execution of the transaction but also makes it traceable and unchangeable.
One of the main advantages of smart contracts is that they enable secure and trusted transactions and agreements to take place between anonymous parties without the need for intermediaries, legal systems, or external enforcement.
Although blockchain technology is typically associated with cryptocurrencies like bitcoin, it has evolved beyond that to support a number of different applications. Smart contracts were initially proposed in 1994 by computer scientist Nick Szabo, who also invented a virtual currency called “Bit Gold” in 1998, a decade before bitcoin was invented.
Szabo’s definition of smart contracts is based on computerized protocols that execute the terms of a contract. He envisioned the use of smart contracts for trading synthetic assets like derivatives and bonds. Many of Szabo’s ideas in his paper have since become reality, particularly in the field of derivatives trading that now heavily relies on computer networks and complex term structures.
