The New Face of Digital Contracts: Smart Contracts

One of the first applications that comes to mind when blockchain is mentioned is undoubtedly smart contracts (“smart contracts”). Generally, lawyers and other social scientists prefer the term “smart contract”, while those who focus on the technical side of the subject talk about “smart contracts”. There is no difference, they all refer to computer programs installed and/or executed on the blockchain. So, where did this concept come from and how did it evolve, let’s take a closer look:

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Smart Contracts from the 1990s to the Present

The concept of smart contract was originally introduced in a series of articles by Nick Szabo in the early 1990s. Nick Szabo uses the following expressions in an article: “Through digital transformation, new ways are emerging in which parties can formalise their relationships. I call them smart because they are much more functional than their predecessors on paper. I don’t mean artificial intelligence here. A smart contract is a set of commitments put forward in digital form.” Credit cards and electronic data interchange (EDI) with POS terminals that we use frequently today can be considered as a more primitive version of smart contracts.


In the preface he wrote for a report after the launch of the Ethereum blockchain, Nick Szabo stated that the blockchain is the jet fuel needed for the establishment of smart contracts. And so we began to witness the renaissance of smart contracts. While there are multiple blockchains that support smart contracts, the largest of these is the Ethereum blockchain.

When we look at the Ethereum website, we see the following statements: “Smart contracts are the basic building block of Ethereum applications. These are computer programs stored on the blockchain that allow traditional contracts to be translated into their digital counterparts. Smart contracts are perfectly logical; They follow the structure of ‘if this happened, it should happen’. This means they will behave as programmed and cannot be changed.”

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Primitive Smart Contracts: Goods and Service Vending Machines

The working principle of smart contracts is explained by many using product vending machines. Vending machines have predetermined conditions; such as the price of the product or service offered and the product/service number. When these conditions set in the machine are fulfilled by a person, the machine automatically delivers the product or provides the service (if… then/ if this… then that). The key word here is actually automation.

The biggest benefit of vending machines is that they reduce the transaction cost on the one hand, and on the other hand, they eliminate the need for intermediaries. However, such vending machines also have some disadvantages: For example, the glass of these vending machines may break, the machine may break, the people who place the products in the machine may exhibit malicious behaviour… These vending machines can also be affected by power cuts. All these possibilities may prevent product vending machines from always working as expected or hoped and the planned result to be achieved.

Smart contracts set up on the blockchain go a few steps beyond vending machines, eliminating such risks. The terms of smart contracts are machine readable .formulated in programming language. Since the need for intermediaries is eliminated, the risk of automation being disrupted by these people is eliminated. Smart contracts are closed to external influences.

Features of Smart Contracts

Because smart contracts are built on the blockchain, they contain all the features of the blockchain: processes secured by cryptography, transparency, elimination of intermediaries, no subsequent changes in transactions… All this means: execution of the smart contract, voluntarily by the parties, blockchain It cannot be stopped by the blockchain operator that creates, operates and supervises, or through the court. Since smart contracts are implemented automatically, it is not possible for even judicial authorities to interfere and prevent the execution of the smart contract. Once the smart contract is placed on the blockchain, it is not possible to make changes to the smart contract, revert or cancel the smart contract.

When the predetermined and coded conditions in the smart contract are fulfilled, the smart contract automatically executes the pre-decided matters without the need for the parties to take any further action. The smart contract code automatically checks whether the predetermined conditions are fulfilled. If these conditions are found to be fulfilled, the smart contract automatically performs the exchange of asset values ​​between the parties. These features of smart contracts distinguish them from electronic contracts and take them to a new dimension.

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