Smart contracts are digitally binding terms written in computer code and executed on a blockchain network. The concept of a smart contract was first introduced by the American legal scholar and cryptographer Nick Szabo in a paper he released in 1994. Szabo realized that a decentralized ledger could be used to introduce self-executing contracts. He suggested that legal contracts could be converted to computer code and even launched “Bit Gold” in 1998, a digital currency that could be used to execute smart contracts.
The blockchain network provides an information channel that is both secure and highly accessible from anywhere on the planet. These features make it a useful framework to implement smart contracts, which can behave as a personal dealing between two interested parties in a completely trustless process. This has a significant impact on the costs and time involved in enforcing complicated contractual obligations. The clauses of the contract can simply be turned into computer code and executed on a highly secure blockchain network, meaning the transactions occurring are transparent and can easily be validated. Therefore, it is easy to hold all parties involved accountable.