Why do Smart Contracts need the Blockchain?

“Lawyers worried about losing their jobs to robots, you’re actually doing something that’s mostly complimentary to a smart contract. Smart contracts are mostly making possible new things that haven’t been done before.”

  • Nick Sabo


We’ve got a lot of questions from a lot of newcomers into the ecosystem about several generic topics. What are cryptos? Why is bitcoin different from blockchain? What is decentralization? What are Smart contracts? And so on. These questions might seem pretty trivial right now, but they are essential questions for anyone newly getting into the sphere.

I am sure (at least hope :P) that most of our readers are pretty clear with the basic questions, and are well on their way to grasp complex topics such as DLTs, ZKPs, Charting, Fundamental Analysis, etc. So let us knock down another one of those frequently stumbled upon questions.

A Brief History


If one attempted to least scratch the surface of the history that lead to Bitcoin, Nick Szabo is a name sure to come up quite often. Back in the ’90s, Nick was a prominent member of the Internet Cyber Phunk Group. And was also the founder of BitGold, a precursor to Bitcoin. Some people consider that if it wasn’t for BitGold, Bitcoin would’ve never been conceived.
In 1996, Nick Szabo wrote a paper titled Smart Contracts: Building Blocks for Digital Markets (HIGHLY RECOMMENDED READ) that contained an introduction to a self enforceable virtual contract to be written and executed on the internet. Smart Contracts since have gone on to be the greatest trend within the Blockchain space, arguably single-handedly driving the rate of adoption.

Coming to the question of the essay, why did it take 10-15 years for Smart Contracts to gain popularity? What couldn’t they function on their own? Why didn’t anyone writeup code for Smart Contracts to be fully enforceable on the internet?

Most Importantly, Why blockchain?

Let us find out.

What are Smart Contract?

Screenshot 2019-05-17 at 12.06.20 PM.png

Neither Smart not Contracts, Smart contracts are lines of code that are stored on a blockchain that automatically execute when predetermined terms and conditions are met. At the most basic level, they are programs that have been set up to run by the people who developed them for a specific task. The benefits of smart contracts are most apparent in business collaborations, in which they can be typically used to enforce forms of agreement, that all participants can be certain of the outcome without involving or depending on an intermediary for validation and execution.

Smart Contracts without a Blockchain

Technically, a smart contract can be designed and executed on a ‘blockchain-less’ platform for real-time use as no mandatory base layer is specified in Nick Szabo’s first paper on the subject. But without a layer to run, execute and enforce on, it diminishes the added capabilities that the integration of both platforms bring. Smart contracts and blockchains together form a virtual bond that discourages any malicious threats to the tamper the execution of the contract. A smart contract is written and executed without a blockchain lacks certain important characteristics that hinder the legitimacy of the contract. Without the use of a blockchain layer, the trust factor is removed, as one party cannot readily trust another party without pre-established rules for trust.

Nothing is going to stop one from building a smart contract on top of a traditional database. But blockchain brings two essential features that are absolutely required to build efficient smart contracts:
it removes the need for a trusted central coordinator. With blockchain, you get rid of any single point of failure that might make the contract susceptible to outside influence
Smart contracts are irreversible on the blockchain. Once published and propagated on the blockchain, Smart Contracts cannot be hindered or removed, unless the conditions are met or a clause has been included. This features ensure parties on both sides to perform their duties and obligations

For interested personnel, below is a curated set of resources that can be helpful for anyone wanting to know more about smart contracts. The list includes videos, courses and essays on how Smart contracts operate, how to code and how to execute, etc.

Smart Contract Languages

Study how to write smart contracts, which is the basic unit of programming a blockchain for business purposes. It is the equivalent of being taught HTML and Java during the early Internet days. And master how to create assets or tokenize existing ones on a blockchain.

  • The Business Blockchain, William Mougayar

- SB

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We have always been intrigued by smart contracts.

What are its strengths and weaknesses? What types of contracts can it be used for? For instance, can be it used in an oil and gas construction project worth, say, $4billion, involving a large oil and gas major like Total and a consortium of EPC contractors like McDermott, Technip and Samsung with numerous sub-contractors numbering few hundreds and more sub-sub-contractors? In a project like this, parties make provision in the contract by way of contractual clauses for changes during the performance of contract, to cater for factors they have not foreseen. These changes could be triggered by acts or omissions of the parties themselves or due to extraneous factors like force majeure.

On the face of it, it looks like it can handle only simple contracts where there are only two or perhaps three parties each time a contract is signed.

Perhaps with the help of iot and ai, smart contracts might be able free itself from some of its current limitations.

Will be reading/watching the list of resources recommended. We are sure it will be helpful to clear some of the doubts we have and expand our knowledge.

Thank you for the post and the resources.

Informative post @reverseacid. Will checkout the resources recommended. Thanks.

Just came across this informative post. Thanks it's good to learn more bit by bit. Keep up the good work.

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