Neither Smart Nor Contract – Papa Bitcoin (BTC)
Why Smart Contracts should be called something else.
When you are active in the blockchain and crypto world, you have definitely heard of the term Smart Contract. The name sounds very promising, smart is always better than dumb and contract gives it something legal and serious.
So this Smart Contracts must be a big deal?
Yes, they are but there is a major problem with their terminology. The term Smart Contract is in my opinion and of others, as you will see during this blog post, the wrong naming for this beautiful piece of blockchain technology and confuses newbies.
For me this topic is very special since I wrote my Bachelors thesis about Smart Contracts. I spent a lot of time and effort researching about Smart Contracts and to be honest one of the reasons why I chose to write my thesis about them and not crypto currencies was their name. Which had something positive contrary to crypto, which by many people is associated with speculation, crime and frauds. I do not agree with this but at that time I was annoyed of all the people who asked me what I think about Bitcoin and if they should invest (yes); and Smart Contracts where a good alternative to write something blockchain related without having crypto (directly) in it. Ironically I became interested in Smart Contracts because of their name but later find out it was wrong.
So, what is the problem with the term Smart Contract and what is a Smart Contract in the first place? Surprisingly the answer to the first question is easier than the second question but they are linked together. To understand what I mean see the following two definitions of a Smart Contract below:
“A smart contract is a self-executing contract with the terms of the agreement between buyer and seller being directly written into lines of code.” (https://www.investopedia.com/terms/s/smart-contracts.asp)
“These are representations of business processes in code; they extend the opportunity to have not just attestable data shared between multiple parties, but also attestable processes.” (https://hbr.org/sponsored/2017/10/how-blockchain-will-accelerate-business-performance-and-power-the-smart-economy)
As you can see, the definitions vary a lot from self-executing contracts to business processes in code. Of course, they both go in the same direction as most business processes are based of contracts/agreements but why is there variation in the definitions? The reason is that there is no commonly accepted definition of Smart Contracts. The first time the concept of Smart Contracts came up was in 1994 but blockchain was invented 14 years later in 2008. That`s why its current use on the blockchain is different than the original idea that was without the possibilities of a blockchain.
There are in general two big groups where most definitions can be summarized as seen in the table below. The first definition Smart Legal Contracts resonates with the original idea of a Smart Contract by its creator Nick Szabo who is a computer scientist and legal scholar (what a surprise). The second group of definitions called Smart Contract Code represents its current use as a programm that runs on a distributed ledger (blockchain).
As you can see, the two previous definitions were examples of these two groups. In its current use the second group (Smart Contract Code) is the right definition for Smart Contracts since they are not legally binding and in most cases not used to represent a contract in the traditional sense. Although some member of the blockchain community like to say “Code is Law” this is not true in reality. “Law is Law” and until Smart Contracts are legally binding by the authorities, nothing is going to change. Additional Smart Contracts nowadays are used as “blockchain programms” to create tokens, support supply chain management or prevent counterfeiting of art/luxury goods, not as digital contracts. Also, they are not really smart since there is no AI involved in them.
The term Smart Contracts is very confusing for beginners, which automatically think they are some kind of contracts in the traditional sense that are on a blockchain. We should get rid of the words smart and contract so how should we call them correctly?
We saw that a Smart Contract is code (script) that runs on a blockchain (which is persistent by its nature) that if certain pre-defined conditions are met automatically fulfils an action.
This is why Vitalik Buterin, who is the inventor of Ethereum the blockchain protocoll where most Smart Contracts are developed, tweeted:
There is a reason why people call them Smart Contracts due to their history and original purpose intended by Nick Szabo. The name sounds catchy but in its current use Persistent Scripts or other names such as Chain Code/Blockchain Programm are better suited because most uses of Smart Contracts are no contracts.
If you don’t believe me, listen to Vitalik he created his own currency and is a multi-millionaire now, very smart but there is no contract involved 😉
Published at Wed, 05 Feb 2020 17:48:55 +0000
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