What is an Ethereum Smart Contract?

Ethereum Smart Contracts

Smart Contract is a term used to describe a computer coded program that can self-execute the exchange of money, content, property, shares, or anything of value.

It is arguably the most important application on the Ethereum blockchain, and is probably why Ethereum has grown to become the monster it is today, but what exactly is a smart contract?

History of Smart Contracts

Smart contracts were first proposed in 1994 by computer scientist, Nick Szabo, who also created a virtual currency back in 1998 called ‘Bit Gold’.

This has led many to conclude Szabo is actually Satoshi Nakamoto, something the computer scientist denies.

Back then, Szabo defined smart contracts as ‘computerized transaction protocols that execute terms of a contract.’ (Szabo, 1994).

He also claimed that smart contracts built into cryptographic infrastructure would ‘minimize exceptions both malicious and accidental, and minimize the need for trusted intermediaries.’

He went on by saying smart contracts could represent all synthetic assets, such as bonds and derivatives, and could even be embedded into smart house and car ownership.

The smart contract would be a legal representation of the home ownership certificate that we have today, whereas the car smart contract could even be programmed to actually work the car.

smart contracts self execute

The owner of the car would have the smart contract, which would be the only trigger of execution, thus minimizing car theft.

Szabo’s vision was a digital contract, built into a cryptographic database, where code couldn’t be manipulated. And you wonder why people reckon he’s Satoshi, not.

Ethereum Smart Contracts

More than 20 years after his vision, computer code that is built into an immutable and open blockchain, and one that self executes when two parties are in agreement is now possible on Ethereum.

The code and the agreements contained therein exist across Ethereum’s distributed, decentralized blockchain, and the code controls the execution.

The possibilities of what a smart contract could represent vary from an IOU to an actual government. That’s right, even a government could be programmed to self execute decisions that are made in agreement when laws are passed.

And because it’s built on the Ethereum blockchain, a smart contract will run exactly as programmed without any possibility of censorship, downtime, fraud or third-party interference. Imagine your government acting like that.

Ethereum is the main smart contract enabled platform/blockchain because of its flexibility due to its Turing complete infrastructure. This means developers can build anything in any language, and the Ethereum blockchain will process it.

What Could Smart Contracts Be Used For?

Well as with Szabo’s vision, smart contracts can represent pretty much anything. There’s no chance a government will be built into one anytime soon, but Aragon is an interesting Etheruem application that is creating the very essence of a smart contract government.

Decentralized Autonomous Organizations (DAOs) are exactly that. With rules and regulations coded into the smart contract, and because of its immutable nature it could effectively be a government, or even a corporate board.

Aragon is one of the most interesting smart contracts built on Ethereum.

Pretty much anything where truthful and critical decisions have to be made can be coded into DAOs.

Smart contracts are all dApps on Ethereum. As well as Aragon, other notable dApps are FunFair and Enjin, which are two platforms for blockchain based gaming, where every aspect of a game is coded into a smart contract.

These smart contracts are the casinos or even ingame assets such as skins. The beauty of smart contracts is that these skins are actually non-fungible tokens (NFTs) and can actually be owned, and traded if the owner so wishes.


Smart Contracts are Ethereum’s killer dApp. They’re not a new concept, and Bitcoin can host them, but Ethereum’s flexibility allows it to host much more complex smart contracts.

Although the idea is more than 25 years old, smart contracts are in their infancy. But as Ethereum scales, the capabilities of smart contracts will expand to stuff beyond our imagination.

The future will look a lot different to what it is today, and a lot of that will be down to smart contracts.

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When I came up with Ethereum, my first first thought was, 'Okay, this thing is too good to be true.' As it turned out, the core Ethereum idea was good - fundamentally, completely sound

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