Smart contract

The parties sign a smart contract using methods similar to signing the sending of funds in existing cryptocurrency networks. After signing by the parties, the contract takes effect. To ensure the automated fulfillment of contractual obligations, an environment of existence is required, which allows to fully automate the implementation of contract clauses. This means that smart contracts can only exist inside an environment with unhindered access of executable code to objects of a smart contract. All conditions of the contract should have a mathematical description and a clear logic of execution. In this regard, the first smart contracts have the task of formalizing the simplest relationships, consisting of a small number of conditions. Having unhindered access to the objects of the contract, the smart contract monitors the achievement or violation of points according to the specified conditions and makes independent decisions based on the programmed conditions. Thus, the basic principle of a smart contract is the complete automation and reliability of the execution of contractual relations. ^[3]

The first ideas for smart contracts were proposed by Nick Szabo ^[4] . Practical implementations became possible due to the advent of blockchain technology in 2008 ^[5] . Some principles of smart contracts were laid down already in the first Bitcoin protocol , but they were not implemented in client software, did not have Turing completeness for security reasons, and were not widely used in practice. With the advent of technology, ideas began to be expressed that various protocols of a higher level could be created on top of the Bitcoin protocol, including full-fledged smart contracts ^[6] , similar to how many application-level protocols exist on top of TCP / IP .

Smart contracts were first widely adopted with the advent of Ethereum . The idea of ​​creating a project appeared in 2013. At that moment, the founder of Bitcoin Magazine Vitalik Buterin came to the conclusion that blockchain technology can be used much more widely, not only in cryptocurrencies. He put forward the idea of ​​a universal decentralized blockchain platform in which anyone can programmatically implement different systems for storing and processing information. The main condition is that actions should be described as mathematical rules ^[7] .

• Signatories are parties to a smart contract that accept or decline terms using electronic signatures . A direct analogue is the signature of the sender of funds on the Bitcoin network, which confirms the introduction of a transaction in a block chain.
• Subject of the contract . The subject of the contract can only be an object that is inside the environment of the existence of the smart contract itself, or the unhindered, direct access of the smart contract to the subject of the contract without human participation should be provided.
• Conditions . The conditions of a smart contract should have a full mathematical description that can be programmed in the environment of the existence of a smart contract. It is in the conditions that the logic of the execution of clauses of the subject of the contract is described.
• Decentralized platform . For distributed storage of a smart contract, it is necessary to record it on the Blockchain of this platform. ^[eight]

In order for smart contracts to exist, certain conditions are required:

1. Using widespread methods of electronic signature based on public and private keys ( asymmetric encryption ).
2. Existence of open, decentralized and contracting parties to the contract database for executable transactions, the operation of which completely eliminates the human factor. As an example: blockchain in Bitcoin .
3. Decentralization of the smart contract execution environment. As an example: Ethereum , Codius , Counterparty .
4. Reliability of the source of digital data. As an example: SSL root certification authorities in the databases of modern Internet browsers. ^[9]

• By analogy with the IPO, the initial blockchain placement (ICO English initial coin offerings ) is introduced - a crowdfunding method for organizing startups . Based on the published memorandum, investors send funds to the account of the corresponding smart contract, receiving in exchange banknotes playing the role of shares of this startup. As of August 2017, the volume of investments in ICOs is $ 550 million ^[10] .
• There is an idea to create a decentralized, Ethereum-based product similar to Facebook, where users will have full control over their personal pages, which will give them the opportunity to receive advertising revenue themselves, instead of any company.
• The ability to create a securities market without the participation of a stock exchange or a clearing center. Neither the services of lawyers nor the platforms for voting, polls protected from unauthorized access, without the need to count votes, without the processing of ballots by the electoral body and without the participation of a sociological center are needed to implement the contracts.

Vitalik Buterin , Moscow , August 30, 2017 ^[11]

Supporters of smart contracts claim ^{[ who? ]} that many of their species can be made partially or fully self-fulfilling and self-sufficient. Smart cryptography- based contracts are able to provide better security than traditional law-based contracts and reduce other transaction costs associated with concluding contracts and possible legal costs.

According to the British magazine The Economist, smart contracts have the prospect of becoming the most important application of blockchain technology ^[10] .

Smart contracts can be given legal significance in accordance with state laws. For this, smart contracts should contain the conditions and restrictions established by the legislation of the state ^[12] .

Belarus became the first country in the world to legislate smart contracts on December 21, 2017 in accordance with the Decree on the Development of the Digital Economy . ^{[2] [13]} The developer of the legal concept of the smart contract was a Belarusian lawyer Denis Aleinikov ^{[14] [15]} . The country plans to allow banks to enter into smart contracts. ^{[16] [17]}

Observers have expressed concern that the proliferation of automated contract support technologies could weaken existing social institutions that humanity has created over many generations. In addition, such technologies can lead to the disappearance of a large number of administrative jobs, just as robotization has led to the disappearance of jobs in the industry ^[10] . This applies, in particular, to notaries, bank employees, as well as to clerks involved in the registration of real estate transactions ^[18] .

The negligence of developers can lead to malicious use of smart contracts, as the story of the leak of more than three million Ethereum coins from The DAO project showed ^[19] .

• Smart Contracts (Fourth Value Revolution) - Nick Szabo article, 1998 Computerra .
• The idea of ​​smart contracts
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