Smart contract

A smart contract is an electronic algorithm designed to automate the execution of contracts on a blockchain. The main idea behind smart contracts is to eliminate divergent interpretations of the terms of the contract between the parties.

The idea of ​​smart contracts originated with Nick Szabo, who, in his 1996-1997 papers, proposed using computer algorithms with user interfaces to conduct e-commerce transactions. Szabo envisioned contract terms being described using mathematical tools and programming languages. The idea of ​​smart contracts was first implemented in practice by Vitalik Buterin in his Ethereum project (2013).

The implementation of Szabo’s idea became possible with the advent of blockchain technology, which ensures the reliability and protection of the smart contract due to the following factors:

• Decentralized type of system. Neither party to the contract can change the text of the document, since a copy of the contract is stored in a registry distributed among many network nodes.
• Open databases. The terms of the contract are available to all blockchain participants, which simplifies the audit of contract execution.
• Formalization of contract terms. Checking and fulfilling the terms of the contract is carried out by program code (if-this-then-that (IFTTT))Therefore, the possibility of incorrect execution of the contract is excluded.
• Atomic operations. The contract will either be successfully implemented or not implemented at all.
• Turing completeness. The blockchain presented in Ethereum has a built-in Turing-complete programming language, thanks to which users can create any contracts themselves.