What are smart contracts?
Smart contracts are computer algorithms designed to complete and sustain commercial contracts in blockchain technology. Parties sign a smart contract using the same methods as when signing to send funds through the existing cryptocurrency networks.
After signing the contract, the contract is then in force. To ensure automated fulfillment of contract obligations, an environment is required that allows full automation of the execution of contracted items.
This means that smart contracts can exist only within an environment that has unrestricted access to the executable code of the objects of a smart contract.
All contract terms must have a mathematical description and clear execution logic. In this context, the first smart contracts had the task of formalizing the simplest contractual relationships, which consisted of a small number of conditions.
By simply accessing the objects of the contract, a smart contract can monitor and control the violations of the elements of the contract, and make independent decisions based on the programmed conditions.
The main principle of a smart contract is, therefore, the complete automation and reliability of the execution of contractual relationships between the parties. This is the most important fact about them.
The history of smart contracts
The first ideas for these contracts were proposed in 1996 by Nick Szabo. Thanks to the appearance of blockchain technology in 2008, practical implementations became possible.
Some principles of smart contracts were defined in the protocol of the first blockchain currency, Bitcoin, but were not implemented in the client software due to security reasons.