We write smart contracts in ethereum blockchain. How did contracts get its name as Smart Contracts? Why are they called as Smart Contracts?

In the ethereum yellow paper: https://ethereum.github.io/yellowpaper/paper.pdf

Early work on smart contracts has been done by Szabo [1997] and Miller [1997]. Around the 1990s it became clear that algorithmic enforcement of agreements could become a significant force in human cooperation.

Nick Szabo is credited with coining the phrase: https://en.wikipedia.org/wiki/Nick_Szabo

The phrase and concept of "smart contracts" was developed by Szabo with the goal of bringing what he calls the "highly evolved" practices of contract law and practice to the design of electronic commerce protocols between strangers on the Internet.[4][5] Smart contracts are a major feature of cryptocurrency[6] and the programming language E.[7]

Nick Szabo's publications on the topic: http://ojphi.org/ojs/index.php/fm/article/view/548/469#Building

Smart contracts combine protocols with user interfaces to formalize and secure relationships over computer networks. Objectives and principles for the design of these systems are derived from legal principles, economic theory, and theories of reliable and secure protocols. Similarities and differences between smart contracts and traditional business procedures based on written contracts, controls, and static forms are discussed. By using cryptographic and other security mechanisms, we can secure many algorithmically specifiable relationships from breach by principals, and from eavesdropping or malicious interference by third parties, up to considerations of time, user interface, and completeness of the algorithmic specification. This article discusses protocols with application in important contracting areas, including credit, content rights management, payment systems, and contracts with bearer.

Hope it helps.

  • 1
    Since when are lmgtfy acceptable for respectful discourse on any SE site? – Polygnome Sep 26 at 10:30
  • This does not answer the question. The quote mentions 'smart contracts', but doesn't explain why they are called 'smart contracts'. The lmgtfy link should be removed. – sloth Sep 26 at 10:50
  • LMGTFY is not the way to answer questions. The answer does not even properly address OP's question. – SeaWarrior404 Sep 26 at 11:14

Most Financial Instruments - Options, Contract For Difference (CFD), Credit Default Swap (CDS), futures etc. are in fact Contracts and not a physical asset, like gold, paper money, or even stocks (which have a certificate even if you do not possess it. Collectively known as Derivatives - as they derive their value from somehting else - the purchaser pays the otehr party up front a nominal fee and when certain conditions outlined in the contract are reached, the seller will have to fulfill the terms of the contract.

For a Smart Contract, when the conditions of the contract are reached, the contract automatically fulfills the terms of the contract on behalf of the Sellers.

An Simplified example would be if you bought House insurance and your house burned down. In a regular contract you would have to contact your Insurance company and wait for them to send you the pay out. In a Smart Contract, the programme would see the house is burnt and automatically transfer the pay out to you.

From the wiki : "smart contract" is mostly used more specifically in the sense of general purpose computation that takes place on a blockchain or distributed ledger. Just use google to find such answers :)

  • This doesn't answer the question. I've searched on google but didn't find any answer. Hence, I posted this question. – Sahil Butani Sep 26 at 11:07

To understand this, you have to think about a contract. A normal contract is an agreement between people/companies/groups. This agreement allows two parties to do a task which can be as mundane as fixing a chair to writing some software to achieve a particular objective. Generally in real world, a task is done only after a contract is negotiated, written and then agreed upon by the two parties. This involves some form of conversation and manual intervention.

In a blockchain network like Ethereum, each contract which runs does some task on behalf of the person who runs the contract. This may involve using gas to perform a transaction. At the end of the procedure, two parties in this case, would have settled a payment, verified a document etc based on the use case for which the contract is written. These contracts are run automatically whenever a user clicks on execute or say transfers some ETH from one account to another. This means, the typical agreement to do a particular task(In this case, transfer of ETH) is all done automatically without any manual intervention as such.

This sort of procedure which facilitates execution of tasks autonomously makes contracts a very powerful tool. Hence they are called as Smart Contracts.

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