A brief history of Smart Contracts

When you hear Smart Contracts, you often think Ethereum or blockchain. But what if I told you that Smart Contracts have been used for over a quarter of a century?

A smart contract is a software that’s enforcing the terms of a contract-like arrangement between third parties. Such an agreement reduces the need for you to trust a third party, as it offloads reliance to the smart contract owner.

Smart Contracts Before Blockchain

I recently invited Dean Tribble, the CEO of Agoric and software engineering legend to come on my podcast and talk about Smart contracts and Chain Abstraction. I’ll leave some links down below if you like to listen to the entire conversation.

🎧 Listen on Spotify | Apple Music | Youtube

What I didn’t know at the time is that Dean co-authored the first production smart contract back in 1989 — AMiX.

AMiX

AMiX was an online information marketplace.

When people contracted with each other through the AMIX system, they expressed the contract in two parts: one that both human and the AMIX software could understand, and that the AMIX software could enforce; and the other as free form text only for humans to interpret.

The innovative aspect of AMiX lay in its use of smart contracts to facilitate and enforce transactions without the need for a trusted third party. These contracts were self-executing with the terms of the agreement directly written into code, ensuring automatic enforcement and execution of obligations once predefined conditions were met.

At their core — smart contracts enable decentralisation of service but decentralisation is not a prerequisite for smart contract execution. Any organisation can run a smart contract on one, or multiple servers. Therefore one, or many servers can agree to enforce the rules of the smart contract.

The introduction of AMiX demonstrated the potential of blockchain technology to revolutionize traditional contractual processes, by removing the only trustful element in this process — the smart contract owner. In many ways that was AMiX’s biggest design flaw. The smart contract was owned and managed by AMiX and AMiX had direct access to individual terms between third parties.

Webmart and E Programming Language

The Webmart project is another early iteration of smart contracts, built by the team at Sun Labs back in the early 90’s to solve the scarcity of an individual rooftop satellite receiver dish.

The dish was bought as a resource for the lab as a whole, but it could only be pointed in one direction at a time. How should this right to point be allocated? We created a futures market in time slices, built from distributed capabilities.

Sun Labs started out by building software able to control the direction of the sattelite and a small amount of code was able to create derivative rights, in layers, building up to tradable exclusive rights to command the dish during future time slots.

These rights could be exchanged via reusable escrow exchange agents and auctions.

This project was the predecessor of E — an object-oriented programming language with smart contract features — the first of its kind.

Mainstream Adoption and Evolution

The application of smart contracts saw significant expansion with the growth of the internet.

Companies like eBay, PayPal, Venmo, Airbnb, and Uber leveraged these contracts to facilitate transactions where trust was outsourced to technology rather than traditional intermediaries.

This phase marked the transition of smart contracts from niche technological experiments to foundational components of major e-commerce and peer-to-peer platforms.

Today, they’re used in almost all large-scale applications that facilitates actions between two or more third parties. Smart contracts have been the invisible technology layer that made the Internet a much safer, and more future reach experience.

They are in fact ubiquitous, and because they’re everywhere, they’re nowhere. They’re invisible to us because they are the pillars upon which the Interactive Web rests.

Integration with Blockchain Technology

The only place where Smart Contracts are not invisible is Cryptocurrency and Blockchain.

Up until Blockchain, implementations of Smart Contracts had one major flaw. They relied on a central authority to process smart contract code in a fair an unbiased way. In other words, the trust element, even though it was significantly reduced, it was not fully resolved.

Going back to AMiX — users had to trust that AMiX will process these contracts fairly, and without issues. Same idea for Paypal, Venmo, Uber or Deliveroo. But happens if reliance on a centralised authority would not be necessary of the fulfillment of a service?

The answer to that question is naturally — we need a decentralised mechanism, whereby multiple independent parties all agree on the outcome of the smart contract.

Once agreed, the decision and final and irreversible.

Thus — distributing the Smart Contract across nodes operating on an immutable ledger seemed like the perfect solution towards fair, and transparent decentralised systems.

It wasn’t until Etherum’s launch in 2015 that we really saw the advantaged of minimizing trust and reliance of such systems. This paradigm shift was pivotal as it expanded the scope of smart contracts from simple automation tools to powerful enablers of decentralized applications (dApps).

We’ve come a long way since 2015 and so have Smart Contracts. We now have decentalised markets, and applications all running on Smart Contracts. Smart Contract languages have evolved too!

For instance Agoric allows users to write Smart Contracts using native JavaScript. When I asked Dean about it on my cryptocurrency tech podcast, he said that it was due to a happy circumstance that JavaScript was one of the easiest and most secure languages to lock down safely because of it’s unique and clear distinction of user-mode system-mode separation.

Smart Contracts will continue to play a pivotal role both in web2 and in web3 — and soon enough, from a user perspective there will be no visible distinction between the two.

This industry is going in the right direction and systems like Agoric ensure that the future is more abstract, and therefore more user-friendly. Thank you for reading.