Part 2 — Making Sense of Smart Contracts

Smart contracts as smart contract code

Blockchains can run code. While the first blockchains were designed to perform a small set of simple operations — mainly, transactions of a currency-like token — techniques have been developed to allow blockchains to perform more complex operations, defined in full-fledged programming languages.

Imperfect, misleading, and someday outdated

The term receives a lot of valid criticism. Relying on the metaphor of a “contract” is misleading because it emphasizes a single narrow use case. The term fails to capture one of the key capabilities of blockchain programs: that they have a kind of independent agency.

Smart contracts as smart legal contracts

Among those who work in finance or law, the term “smart contract” is often read quite differently than the definition above.

Many contracts, many use cases

The category of smart legal contracts is complicated by the fact that there are many different types of contracts in the world, only some of which are obvious candidates for use as “smart contracts”. A legal contract could be anything from a verbal agreement for someone to paint your house to a derivative traded electronically in financial markets.

Alternatives to traditional legal agreements

Many advocates for blockchain technology see larger possibilities. Rather than merely imitate or complement the legal contracts we use today, perhaps smart contract code could be used to facilitate new types of commercial arrangements.


The lack of clear terminology in this field is an unfortunate reality. Those of us who work in the blockchain space should be mindful of how the term is being used in different communities, and be prepared to ask a series of annoying, though necessary, clarifying questions when asked about the nature and potential of “smart contracts”.



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