What is a smart contract?

Nick Szabo first proposed smart contracts in 1994.He defines it: "A smart contract is a computerized transaction agreement that enforces the terms of a contract."

The word "agreement" in the transaction agreement refers to the computer agreement.Nick Szabo's paper on smart contracts can be found at: http://www.fon.hum.uva.nl/rob/Courses/InformationInSpeech/CDROM/Literature/LOTwinterschool2006/szabo.best.vwh.net/smart.contracts.html.

Nick Szabo is a renowned computer scientist, legal scholar, and cryptographer whose research focuses on smart contracts and digital cash.In 1998, he also created the centralized digital cash Bitcoin Gold.

Why do you need smart contracts

Nick Szabo said: "Smart contracts are designed to enforce general contractual conditions, minimize malicious and accidental situations, and minimize the use of trusted intermediaries."

He believes that we need a computer protocol that can fully guarantee that if payment is made, the item will be sent, or if the item is sent, the money will be received.

In real life, we have many ways to achieve this.The goal of computer scientists is to automatically enforce contract terms with pre-determined code, without human intervention and third-party intermediaries.

The "intelligence" in smart contracts can be understood as automatic execution according to conditions, without human intervention, automatic or autonomous.

Is a "contract" a good analogy for a smart contract

By its name, isn't a good analogy for a smart contract the "contract" we enter into in our business activities?Actually not.

An apt analogy to a smart contract is the automatic cola vending machine we often use when talking about the computer term "finite state machine" or "state machine":

• We put a coin into the Coke dispenser and clicked the Coke out button.
• The vending machine releases a can of Coke from the outlet.
• The vending machine is restored to its original state.

Saab also stated in his 1997 article that the original ancestor of smart contracts was the humble vending machine.

In the Ethereum white paper, Vitalik also specifically pointed out that the "contract" here should not be understood as something that needs to be executed or obeyed, but as an "autonomous agent" that exists in the execution environment of Ethereum(autonomous agents), which have their own ethereum accounts, they receive the transaction information and are equivalent to being stabbed, and then automatically execute a piece of code.

Vitalik is the founder of Ethereum, the famous "Vitalik".

We can also look at it this way:

• What the blockchain stores is "state" and smart contracts are how it is used for state transitions.
• Smart contracts are like a special "clock" that turns the world from "synchronous" to "asynchronous".

Smart Property: Using Smart Contracts to Control Physical Assets

In the smart contracts paper, Szabo also discusses how smart contracts can be used for physical assets, forming so-called smart properties.

The so-called smart property is the property controlled by the smart contract program according to the set rules.Saab exemplifies the following:

• For example, to prevent theft of a car, the car will not activate unless the owner is determined to complete the correct Challenge Response Protocol.
• For example, if the car was bought with a loan, when the owner cannot repay the loan, the smart contract will automatically initiate a seizure order and hand over control of the car keys to the bank.Once the owner pays off the loan, the smart contract removes the seizure order.

The concept of smart assets was later expanded. In the introduction to Bitcoin, there is a saying: Assets controlled by smart contracts on the Bitcoin blockchain, whether physical or digital, are called smart assets.(see picture 1).

Figure 1: Smart Assets: By AreaOnline or offline assets controlled by smart contracts on the blockchain

Key papers by Nick Szabo:

• 1994, Smart Contracts.
• 1996, Smart Contracts: Building Blocks for Digital Markets.
• 1997, The Idea of ​​Smart Contracts.