The Skinny On Smart Contracts: An Introduction & Why You Should Care

in #etc7 years ago (edited)



Smart contracts, as defined by Nick Szabo, are computer systems that manage assets. Assets include money, votes, passports and reputation. Examples of smart contracts include supermarket checkout systems and automated teller machines.

Actions & Agents

washing machine

Smart contracts can perform actions. Automobile insurance plans might adjust rates hourly based on the weather or location. Washing machines might order replacement parts when needed.


Because smart contracts often operate autonomously, it might sometimes be more appropriate to refer to them as agents (autonomous software components). On the other hand, the original term emphasizes that they can manage many legal and financial agreements. An example of a smart contract that managed a financial agreement would be a television that stopped working when the loan payments were in arrears.



Blockchain systems, such as Ethereum and Ethereum Classic, are ideal platforms for smart contracts (agents) because of their security, reliability and censorship resistance.

Improved Communication


A major benefit of smart contracts is the improved communication. Uncertainties in legal and financial agreements such as confusing legalese and unintended loopholes incur huge costs. In contrast, smart contracts are deterministic and formal verification methods can help avoid mistakes.

Smart contracts can have the flexibility of legal contracts¹. For example, they can be designed to allow modifications when there are certain unforeseen events.


Smart contracts can effectively manage assets removing a lot of the confusion of previous methods. Furthermore, when implemented on blockchain systems, they can have unprecedented levels of security, reliability and censorship resistance.

1. Some have misinterpreted the saying, "Code is law!", as implying smart contracts somehow supercede legal systems. The intended meaning is that blockchain based smart contracts should be immutable and unstoppable like laws of nature.


Feel free to leave any comments or questions below. You can also contact me by clicking any of these icons:

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I would like to thank Gavin Wood for his informative papers and talks that have greatly helped clarify many of these ideas. I would also like to thank IOHK (Input Output Hong Kong) for funding this effort.



This work is licensed under the Creative Commons Attribution ShareAlike 4.0 International License.


Could you include some more specific links in your Acknowledgements?

This talk by Gavin Wood was quite good:

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