Smart contract technology is booming with the release of
Ethereum and programming languages such as Solidity and Serpent,
that have made contracts much simpler to build and deploy. The idea
has been around for a long time, though. Nick Szabo, the
cryptographer known for his research on digital currency, wrote an
article about smart contracts as early as 1995. Szabo's article,
"Smart Contracts," was published in early 1996 in the magazine
, and forecast with prescient accuracy the benefits and parameters
of the blockchain contract applications in development and making
blockchain news headlines today.
Szabo defined a contract as being "a set of promises agreed to
in a meeting of the minds [which] is the traditional way to
formalize a relationship." Such contracts are a pillar of a free
market economy and can be useful in business relationships,
marriages and politics.
In his 1995 article, Szabo predicted that the digital revolution
would drastically change the way humans make contracts, and he
questioned even then whether our traditional contracts would
continue to have a use in the cyberspace era.
Szabo saw early on that computers were making it possible to run
algorithms that used to be too costly, and believed algorithms
eventually would be developed for what he termed "smart contracts."
He defined this as "a set of promises, specified in digital form,
including protocols within which the parties perform on the other
promises" without the use of artificial intelligence.
Smart contracts would improve execution of the four basic
contract objectives, which Szabo described as observability,
verifiability, privity and enforceability. Among other use cases
discussed in the following sections, smart contracts according to
Szabo would enable both parties to observe the other's performance
of the contract, verify if and when a contract has been performed,
guarantee that only the details necessary for completion of the
contract are revealed to both parties and be self-enforcing to
eliminate the time spent policing the contract.
Multinational Small Business
In the 1995 marketplace, multinational businesses, rather than
local ones, conducted the majority of international commerce. Szabo
predicted that in a future marketplace there would be such a thing
as a small and multinational business, similar in size to a local
business in 1995. He believed the change could happen as quickly as
the telecom boom.
For local businesses in 1995, communication and transport costs
had become extremely low with the advent of technological
innovations such as fiber optic cables. Still, legal issues created
a barrier for local businesses who wanted to enter the global
playing field. Szabo predicted in his article that smart contracts
would overcome that barrier, drastically lowering legal costs along
with the requirement of compliance with every local legal code and
Szabo also suggested that people might create different virtual
personas to cater to different parts of one's personality or
lifestyle. One might have a persona for work life, for family life,
for friends and many more. Each persona could be unique and only
share data that the person felt comfortable sharing in that part of
his or her life.
Szabo defined a "nym" as "an identifier that links only a small
amount of related information about a person, usually that
information deemed by the nym holder to be relevant to a particular
organization or community." Nyms can include nicknames, brand names
or aliases. A nym can have built-in equity from the positive
associations of other nyms with a similar name or from a reputable
person or group of people.
Szabo defined a true name as "an identifier that links many
different kinds of information about a person, such as their birth
name or Social Security number." Szabo predicted that knowing the
true name of someone could provide massive economic value to a
person(s); one example he cited was allowing an organization to
send targeted product information, knowing the person is
A goal for everyone in the virtual world would be to create a
"reputable name," which would be a nym or a true name that carries
positive attributes and is highly regarded. Szabo predicted that
one day people would sell virtual personas, similar to the way that
companies sell brand names.
With an increase in the use of smart contracts, Szabo believed
we would begin to embed smart contracts into our physical property,
which he described as "smart property." These embedded smart
contracts would automatically grant access to the rightful owner of
the property or guests, depending on the parameters of the
Szabo provided the example of a leased car, whose embedded
contract could automatically return control of the car to the
loaner if the lessee failed to make payments on time. In this way,
smart property would provide value only to the real owner, and
could eliminate the possibility of theft.
Visual Smart Contract Representation
With smart contracts, communicating the exact terms of an
agreement with all parties involved is necessary. Fine print or
misrepresented information is a huge problem with traditional
contracts, whereas smart contracts can have "fine print" written
into the code that is hidden from one of several of the parties in
a transaction. For example, a POS system at a grocery store, a
basic version of a smart contract, can collect data about the
customer, such as their name, and store it in a database without
the customer knowing.
Szabo's solution for mainstream useability was that smart
contracts should integrate a visual representation for the elements
of a transaction. This would allow parties to not rely exclusively
on looking at code to agree on the semantics of a contract and
would eliminate any risk of hidden actions present in the code.
Szabo's vision as articulated in 1995--the equivalent of light
years ago in digital time--was remarkably accurate and has
established a template that, while many at the time may have
doubted, no one can now deny is becoming a reality.