Smart contracts

Smart contracts are computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract, or that make a contractual clause unnecessary. Smart contracts often emulate the logic of contractual clauses. Proponents of smart contracts claim that many kinds of contractual clauses may thus be made partially or fully self-executing, self-enforcing, or both. Smart contracts aim to provide security superior to traditional contract law and to reduce other transaction costs associated with contracting.

Computing platforms and software that can be organised for rational decision-making methods which achieve meaningful execution are known as agoric systems. These type of contracts have been traditionally drafted by lawyers.

The real-world implementation of a smart contract that gained mainstream coverage was The DAO, a distributed autonomous organization for venture capital funding, which was launched with US$150 million in crowdfunding in May 2016 and was hacked and drained of approximately US$50 million in cryptocurrency three weeks later.

The phrase "smart contracts" was coined by computer scientist Nick Szabo in 1994, to emphasize the goal of bringing what he calls the "highly evolved" practices of contract law and related business practices to the design of electronic commerce protocols between strangers on the Internet.
Szabo's 1994 description was:

A smart contract is a computerized transaction protocol that executes the terms of a contract. The general objectives are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement), minimize exceptions both malicious and accidental, and minimize the need for trusted intermediaries. Related economic goals include lowering fraud loss, arbitrations and enforcement costs, and other transaction costs.

Szabo, inspired by researchers like David Chaum, also had a broader expectation that specification through clear logic, and verification or enforcement through 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.

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