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Meet Nick Szabo...

![Source: Swiss Re Centre for Global Dialogue](https://wow-studio-foundation-cms-staging-public.s3.amazonaws.com/Nick_Szabo_78b1e8804c.jpg)

… the American computer scientist who first conceptualized smart contracts in 1994. 

Yup, that’s right. Smart contracts were actually proposed long before the creation of Bitcoin, but it was only after Ethereum was introduced that the concept gained attention and popularity.

**Szabo (1996):**
“These new contracts are ''smart", because they are far more functional than their inanimate paper-based ancestors. No use of artificial intelligence is implied. A smart contract is a set of promises, specified in digital form, including protocols within which the parties perform on these promises.” 

Szabo was interested in cryptography well before the invention of Bitcoin. In addition to his work on smart contracts, Szabo also conducted notable research on ‘Bit Gold’ in 1998, which was a similar project to Bitcoin that was never fully implemented.

Ready to learn more about smart contracts and what they do?


A brief history of smart contracts

A smart contract is a program on a blockchain that runs automatically when specific conditions are met.

While they’re similar to real-life contracts, there are a few differences. For example, they are almost impossible to reverse once they have been deployed, and they do not require a middleman such as a stock broker or real estate agent to implement them.

This allows them to operate in a decentralized manner.

### Buying a House

Here’s an example.

Let’s imagine that Sophia is interested in buying a house. She looks for houses online and finds a seller named Ava who is offering her home for sale. After getting in touch and negotiating a price, Sophia agrees to buy the house. 

Now, Sophia just needs to send money to Ava to complete the purchase, but here’s the catch: Sophia has to wait for her mortgage application to be approved before she can receive the money. At the same time, Ava is also waiting for confirmation.

Throughout the process, various intermediaries and middlemen get involved, handling different legal and financial aspects of this transaction. Sophia's fees to her agents may increase as they wait for her mortgage application to be approved, adding to the cost and time it takes to complete the transaction.

This is both time-consuming and expensive.

So how can smart contracts streamline this process?

### Buying a House with Smart Contracts

What if the world widely adopted smart contracts? What would change?

Wel, for one, the transfer of property ownership could be automated with a smart contract.

Ava, the seller, could make a smart contract that says, “When Sophia has paid 100% of the money, transfer the house deed to her.”

So, Sophia can send the payment to Ava, and the smart contract will guarantee that she receives the house deed once the payment is complete.

This eliminates the need for banks, real estate agents, and lawyers, as well as the fees that come with dealing with these intermediaries.

### Buying a House with Smart Contracts Continued

As you can see through this example, smart contracts can streamline many processes. 

They aren’t meant to replace people, but to make more complicated processes more efficient and convenient.

This, of course, is just one example of how smart contracts can be used. There are many other scenarios where they can be applied.

Developers can use different coding languages to write a smart contract – but the most commonly used language is Solidity. 

Conditions can be written as an ‘If This, Then That’ (IFTTT) statement which will trigger automatically when a particular set of conditions are met.

Once the terms of the smart contract are in place, developers can deploy it on to the blockchain of their choice – like Ethereum or Solana. 

>Tip: if you’re a developer, you may find Truffle Suite (trufflesuite.com) useful for tools and resources to develop your smart contracts. If you’re looking to test your smart contracts in a private environment before launching them on the mainnet, consider checking out Nameless (nameless.io). 



How do they work?

There are 5 main benefits of using smart contracts: 

- Tamper-proof agreements
- Error-free processing
- Speed 
- Parties involved given independence
- Trust and transparency

Let’s dive into these points further. 

### Tamper-proof agreements

Once a smart contract is deployed, the predetermined conditions cannot be changed or modified. 

Take our housing example above to illustrate this. Once all the conditions are met and fulfilled, Sophia is required to pay a certain amount of digital currency (e.g. ETH or BTC) to Ava. In turn, Ava has a set period of time to vacate the property and hand over the house keys to Sophia.

The transaction is recorded on the blockchain like a digital receipt, and the smart contract acts as proof of ownership of the house. It verifies that Sophia is the new owner.

### Error-free processing

Think about a time you made a mistake filling out an application form – it could be a loan, health insurance, a passport, or something else.

Smart contracts can remove human error from the manual writing process, which can save you a lot of time and effort. 

With smart contracts, the application process is completed automatically, saving you a lot of time from traveling or having to refill it out. Instead of waiting 7-21 days for someone to tell you that your application was rejected because of a minor mistake, like using the wrong color ink, you can get instant feedback. 

### Speed

Since smart contracts are simply programs that run on the blockchain, processing transactions can be executed immediately after the conditions are satisfied. 

Have you ever returned something back to a store and had to wait for days to get your money bank? With smart contracts, your money would be returned back to you as soon as a certain criteria was met. For example, it could be providing proof of purchase when returning an item, and the smart contract would return your money instantly. 

Not only would this save a lot of time, it would also eliminate the need for paperwork too!

### Parties involved given independence 

This point refers to the idea that third parties and intermediaries are taken out of the equation through smart contracts. 

When two parties want to make a transaction, they can deal with each other in a peer-to-peer way, and not have to rely on a third party to facilitate the whole process.

The agreement is made directly between the two parties and the deal is enforced through code. 

### Trust and transparency

At times, it may be difficult to trust a third party to be impartial and fair to both sides. The middleman may be biased or manipulated into changing the terms of the agreement at some point during the process.

This is where smart contracts come in, removing the need for a third party altogether through its decentralized, transparent, and autonomous nature. 

Once a smart contract is written, it cannot be modified. It can, however, be verified by both parties at any time.

Additionally, every step of the process is recorded permanently on the blockchain, allowing anyone to verify the details of the transaction as well.



Benefits of smart contracts

You can imagine how much time smart contracts would save you just by looking at the upsides. 

Trusting code may assure the parties involved by providing a more clear-cut distinction that determines when the contract should be executed. But this can be a limitation if someone needs to make changes to the terms of agreements halfway through the process. 

Let’s talk about the downsides.

### Difficulties changing the conditions

Smart contracts are typically impossible to reverse once deployed on the blockchain. If someone changes their mind after making a transaction, it cannot be reversed.

The ability to reverse one’s actions, really depends on how the smart contract has been written. So, some room for flexibility would need to be built into the smart contracts under certain conditions. For instance, a condition could be to require both parties to sign the terms of the contract again by a certain time period to ensure that they want to confirm and move ahead with the process.

### Human Errors

Smart contracts are written by humans, and humans are prone to making mistakes. 🤖

There is always the possibility for developers to make a mistake when coding a smart contract, which could lead to problems when transactions are taking place.

The risk of errors can be mitigated by having the code peer-reviewed by other developers first and testing it on a testnet before it is fully deployed.

Some projects go even further to identify any issues or vulnerabilities by offering bug bounties. This way, it ensures that the code is thoroughly checked by multiple people, increasing the likelihood that any mistakes are caught and resolved before the smart contract is deployed. 

### Final Thoughts 

Despite the potential for errors, the ease and speed at which smart contracts work make them a compelling technological innovation. As the use cases for smart contracts are still being explored, we can expect to see more developments in the years to come. 

For now, smart contracts are mainly used for native web3 applications like cryptocurrencies, DeFi, and NFT projects. 

Just remember that the potential for smart contracts extends far beyond these use cases.

Limitations of smart contracts

Smart Contracts.svg

Smart Contracts

What makes up web3? 

Meet Nick Szabo…
<figure><img src="https://wow-studio-foundation-cms-staging-public.s3.amazonaws.com/Nick_Szabo_78b1e8804c.jpg" alt="Source: Swiss Re Centre for Global Dialogue" title="Source: Swiss Re Centre for Global Dialogue"><figcaption>Source: Swiss Re Centre for Global Dialogue</figcaption></figure>
… the American computer scientist who first conceptualized smart contracts in 1994. 
Yup, that’s right. Smart contracts were actually proposed long before the creation of Bitcoin, but it was only after Ethereum was introduced that the concept gained attention and popularity.
Szabo (1996):
“These new contracts are ''smart", because they are far more functional than their inanimate paper-based ancestors. No use of artificial intelligence is implied. A <a class="glossary-term" data-tooltip-id="term-93">smart contract</a> is a set of promises, specified in digital form, including protocols within which the parties perform on these promises.” 
Szabo was interested in <a class="glossary-term" data-tooltip-id="term-31">cryptography</a> well before the invention of Bitcoin. In addition to his work on smart contracts, Szabo also conducted notable research on ‘Bit Gold’ in 1998, which was a similar project to <a class="glossary-term" data-tooltip-id="term-10">Bitcoin</a> that was never fully implemented.
Ready to learn more about smart contracts and what they do?

Meet Nick Szabo...

![Source: Swiss Re Centre for Global Dialogue](https://wow-studio-foundation-cms-staging-public.s3.amazonaws.com/Nick_Szabo_78b1e8804c.jp...

A brief history of smart contracts

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A brief history of smart contracts

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