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A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible. Proponents of smart contracts claim that many kinds of contractual clauses may be made partially or fully self-executing, self-enforcing, or both.
The aim of smart contracts is to provide security that is superior to traditional contract law and to reduce other transaction costs associated with contracting. Various cryptocurrencies have implemented types of smart contracts. The phrase "smart contracts" was coined by computer scientist Nick Szabo in , and reworked over several years. Szabo's first publication, "Smart Contracts: In Szabo described smart contracts as follows:. New institutions, and new ways to formalize the relationships that make up these institutions, are now made possible by the digital revolution.
I call these new contracts "smart", because they are far more functional than their inanimate paper-based ancestors. No use of artificial intelligence is implied. A smart contract is a set of promises, specified in digital form, including protocols within which the parties perform on these promises.
Szabo, inspired by researchers like David Chaum , also had a broader expectation that specification through clear logic, and verification or enforcement through cryptographic protocols and other digital security mechanisms, might constitute a sharp improvement over traditional contract law, even for some traditional kinds of contractual clauses such as automobile security interests that provide for repossession that could be brought under the dominion of computer protocols.
With the present implementations, based on blockchains , [5] "smart contract" is mostly used more specifically in the sense of general purpose computation that takes place on a blockchain or distributed ledger.
In this interpretation, used for example by the Ethereum Foundation [6] or IBM [7] , a smart contract is not necessarily related to the classical concept of a contract, but can be any kind of computer program. In , a US Senate report said: Usually the judicial system adjudicates contractual disputes and enforces terms, but it is also common to have another arbitration method, especially for international transactions.
With smart contracts, a program enforces the contract built into the code. Byzantine fault tolerant algorithms allowed digital security through decentralization to form smart contracts.
Additionally, the programming languages with various degrees of Turing-completeness as a built-in feature of some blockchains make the creation of custom sophisticated logic possible. Szabo proposes that smart contract infrastructure can be implemented by replicated asset registries [35] and contract execution using cryptographic hash chains and Byzantine fault tolerant replication.
Askemos implemented this approach in [36] [37] using Scheme later adding SQLite [38] [39] as contract script language. One proposal for using bitcoin for replicated asset registration and contract execution is called "colored coins". Hypothesised advantages of a smart contract over its equivalent conventional financial instrument include minimizing counterparty risk, reducing settlement times, and increased transparency. A smart contract is "a computerized transaction protocol that executes the terms of a contract ".
However, this leads to a situation where bugs, including security holes, are visible to all yet may not be quickly fixed. Issues in Ethereum smart contracts in particular include ambiguities and easy-but-insecure constructs in its contract language Solidity, compiler bugs, Ethereum Virtual Machine bugs, attacks on the blockchain network, the immutability of bugs and that there is no central source documenting known vulnerabilities, attacks and problematic constructs.
Karl Schroeder 's novel Permanence features a "rights economy" in which all physical objects are nano-tagged with contractual requirements, so that payment may be enforced for all uses of proprietary information, e.
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