Cryptocurrency Definitions: Smart Contracts

Smart Contract

What is a Smart Contract?

Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code. Smart contracts allow arrangements and transactions to be performed without a need for enforcement mechanism system, or even a central power among disparate parties. They leave trades irreversible, transparent, and traceable. Smart contracts were first proposed in 1994 by Nick Szabo, a computer scientist who devised a digital currency called “Bit Gold” in 1998, fully 10 years prior to the creation of Bitcoin. Smart contracts play a crucial part in the security and functionality of cryptocurrencies.

Szabo defined smart contracts as computerized transaction protocols that execute terms of a contract. He wanted to extend the functionality of electronic transaction methods, such as POS (point of sale), to the digital realm.

In his newspaper, Szabo suggested the implementation of a contract like bonds and derivatives, for assets. “These new securities are shaped by consolidating securities (like bonds) and derivatives (futures and options) in a huge array of means. Quite intricate term arrangements for payments can now be constructed into standardized contracts and exchanged with reduced trade costs, because of automatic evaluation of these intricate expression constructions,” he wrote. That is to say, he referred to purchase and the selling of derivatives with terms. Many of his predictions in the paper came true in contexts preceding blockchain technology. For example, derivatives trading is mostly conducted through computer networks using complex term structures.

Cryptocurrencies are an incredible new and exciting frontier in the financial markets. To prepare yourself to capitalize on this exciting new opportunity, check out our Cryptocurrency Trading Chatroom.

Bulls on Crypto Street is a trading education website dedicated to cryptocurrencies. We teach strategies for swing and day trading cryptocurrencies such as Bitcoin, Ethereum, Litecoin, and other Altcoins. We're at the forefront of this industry and are continuously providing up to date information on each coin, regulations, news, token sales, and much more.

Leave a Comment

This site uses Akismet to reduce spam. Learn how your comment data is processed.