Smart contract is a special protocol that is used when formulating contracts in the blockchain. It contains code functions (Function), and can also interact with other contracts, make decisions, store data, and transmit ether. Smart contracts mainly provide verification and execution of the conditions entered into the contract. Smart contracts allow for trusted transactions without third parties. These transactions are traceable and irreversible. The concept of smart contracts was first proposed in 1994 by Nick Szabo, a scholar who is also a computer scientist and an expert in cryptography. But it wasn’t until 2008 that the blockchain technology needed to adopt smart contracts emerged, and finally in 2013, smart contracts first appeared as part of the Ethereum smart contract system.
The concept of smart contract has three major elements: commitment, agreement, and digital form, so it can expand the application scope of blockchain to all aspects of transaction, payment, settlement and clearing. A smart contract means that when a pre-programmed condition is triggered, the smart contract will immediately execute the corresponding contract terms, and its working principle is similar to the if-then statement of a computer program.
The smart contract contains all the information about the transaction, and the resulting action is only executed if the requirements are met. The difference between smart contracts and traditional paper contracts is that smart contracts are generated by computers. Therefore, the code itself explains the relevant obligations of the parties involved.