What are the Smart Contracts
A contract is a signed agreement between two parties with a third party that stands between two parties who are making a transaction and affirming the terms and conditions of a contract. This way is typically characterized by the traditional centralized system. Oftentimes, these paper contracts have brought about discord and legal conflicts amongst business partners. This discord is as a result of different things such as serious oversights as a result of communication breakdown, breach of contract, contracts not properly drafted, etc. Sometimes, these contracts are susceptible to forgery from either of the parties. However, there have been steps to restructure business contracts and one of the best alternatives to the traditional model is the smart contract.
The Smart Contract Concept
Nick Szabo, an American computer scientist, and cryptographer, first proposed smart contracts in 1994. He invented a virtual currency called “Bit Gold” in 1998, ten years before the invention of Bitcoin. At some point, he was rumored to be the real Satoshi Nakamoto, anonymous inventor of Bitcoin, which he has often denied.
According to Szabo, smart contracts are computerized transaction protocols that execute terms of a contract. He realized that blockchain, the distributed ledger, could be used for smart contracts, which are otherwise called self-executive contracts, blockchain contracts, or digital contracts.