Breaking Down Smart Contracts

What is a contract?

A set of promises. Typically between two entities.

What is a smart contract?

A smart contract, as defined by Nick Szabo in 1996 [1] is

The classic vending machine example

A great example of a smart contract — also from Nick Szabo in 1996 — is a vending machine.

Mental models for contracts

Normal idea of contract in our heads: two people sign document, then go to work and don’t break the contract (keep their promises).

What is a smart contract in the context of blockchain?

At a high level, smart contracts on a blockchain are not much more than our established definition. In the case of a blockchain, the system that automates/ensures the execution of promises is code, and the promises are expressed/specified by the same code.

How is that possible on a blockchain?

Well, it’s only possible on a blockchain that supports this capability.

So is this how it works on real blockchains?

What we’ve established so far is not far off from how smart contracts work on Ethereum.

Notes

[1] Smart Contracts: Building Blocks for Digital Markets, Nick Szabo, 1996.

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