Szabo coins 'smart contract' and supplies Ethereum with its operating vocabulary twenty years early

SEP 01 1996 · 12:00

Video: Smart Contract Pioneer Nick Szabo: Don't Ditch Decentralization Date: 1996-01-01 · Type: precursor · Hub: bay-area · Tags: nick-szabo, smart-contracts, extropy, transhumanism, 1996, ethereum-precursor, law-and-economics, vending-machine "A smart contract is a computerized transaction protocol that executes the terms of a contract." Nick Szabo coined the term and outlined the concept in Extropy: The Journal of Transhumanist Thought in 1996, having begun circulating earlier drafts as far back as 1994. The canonical example was the vending machine — a physical mechanism that performs contract logic with no human intermediary, releases goods on payment, defends itself from light tampering by its physical enclosure. The machine does not call a lawyer; the machine executes. Szabo's reframing was to propose that contracts more generally could be expressed as machine-executable protocols, with property rights mediated by cryptographic keys rather than by courts. The argument was simultaneously legal-theoretical and technical. Szabo, who held a degree in computer science and had studied law and economics at UCLA, was drawing on the transaction-cost economics of Oliver Williamson and the law-and-economics tradition to ask what a world of zero-enforcement-cost contracts would look like. The vending machine was a toy example; the real targets were financial derivatives, property registries, content distribution, and multi-party agreements that currently required trusted intermediaries at every stage. Vitalik Buterin's 2013 Ethereum whitepaper would, in essence, take Szabo's vocabulary as its operating system. The phrase smart contract — and a generation's worth of legal-conceptual confusion about it — is Szabo's gift. The confusion is partly Szabo's fault: a vending machine is not a contract in the legal sense, and a Solidity program is not a contract in the vending-machine sense, and neither is self-executing in the way Szabo imagined. But the productive misunderstanding generated an ecosystem, which may be the best that a coinage can hope for. Facts • 'Smart Contracts' published 1996 in Extropy #16; drafts circulated from approximately 1994 • Expanded essays: 'Smart Contracts: Building Blocks for Digital Markets' (1996) and 'The Idea of Smart Contracts' (1997) • Canonical example: the vending machine as self-executing contract mechanism • Szabo: UCLA computer science, studied law and economics; early DigiCash consultant • Buterin's 2013 Ethereum whitepaper adopted Szabo's vocabulary and conceptual framework Primary Documents • The Idea of Smart Contracts — Satoshi Nakamoto Institute — https://nakamotoinstitute.org/library/the-idea-of-smart-contracts/ • Nick Szabo — Wikipedia — https://en.wikipedia.org/wiki/Nick_Szabo