From Nick Szabo to Ethereum: The Story and Promise of Smart Contracts

The Big Idea: What Is a Smart Contract?

A smart contract is like a vending machine for agreements. You put in your money, press a button, and the machine gives you a soda—no human needed once you’ve paid. The machine doesn’t care who you are or how nice you ask; it just follows the rules. This idea is the heart of smart contracts: code that runs automatically, holding everyone to the deal, no matter what.

Unlike a regular contract, which is a piece of paper or a PDF relying on trust (and maybe lawyers), a smart contract is a small program that lives on a blockchain. Once you set it up, it does exactly what it’s programmed to do. If the rules are met, it keeps its promise—no exceptions, no bribes, no forgetting. This gets rid of most of the gray areas where people might cheat, change their minds, or argue about what was agreed.

The magic of smart contracts is that they combine code (instructions) and trust. Instead of hoping everyone sticks to the deal, you let software enforce it. And because it’s on a blockchain, everyone can see what the rules are, and nobody can secretly change them later.

Nick Szabo and the First Spark

Nick Szabo is one of those thinkers whose ideas show up everywhere, even if most people don’t know his name. In the 1990s, long before anyone had heard of Bitcoin or Ethereum, Szabo wrote about “smart contracts.” He pictured programs that could enforce agreements without needing courts or officials. In his famous essay, he compared them to vending machines and talked about how you could use code to create things like self-enforcing loans, insurance, or even auctions—with no middleman in sight.

Szabo was influenced by his background in law, computer science, and cryptography. He saw that digital money would need digital contracts, and he wanted to solve the messiness of human promises. His writings, like the 1996 essay “Smart Contracts: Building Blocks for Digital Markets,” laid out the vision for programmable agreements. He imagined all the tedious paperwork of the world—mortgages, sales, business rules—handled by computers that couldn’t be bribed or fooled.

But Szabo was ahead of his time. Back then, the internet was slow, blockchains didn’t exist, and money was still mostly paper. The world wasn’t ready for code that could control real funds or assets automatically. His essays became cult classics for cryptographers, but the technology just wasn’t there yet.

Ethereum: Turning Theory into Code

Things changed in 2009 with Bitcoin, but Bitcoin’s own scripting language was limited on purpose. You could send and receive money, but you couldn’t program complex rules with it. Enter Ethereum, launched in 2015 by Vitalik Buterin, a young programmer who saw the chance to take Szabo’s vision further. Ethereum wasn’t just for currency—it was for any kind of program you could imagine, running on a blockchain.

The next layer was the Ethereum Virtual Machine (EVM): a kind of world computer where anyone could write programs (smart contracts) that run exactly as written and can’t be changed. Think of it like a giant vending machine that lives everywhere and nowhere at the same time. You send it money or information, and it spits out results based on the code. And since the rules are public, everyone can check exactly how it works—no secret levers, no hidden doors.

Why Smart Contracts Matter Now

Today, you see smart contracts everywhere, even if they’re invisible to most people. In finance, they run decentralized exchanges, letting people swap tokens without handing their assets to a company. In art, they power NFTs (non-fungible tokens), so only you own that unique digital cat or ticket. In games, they keep track of points, gear, and collectibles. Even supply chains use them: picture a tomato shipment tracked across the world, with payments released automatically at each checkpoint.

The biggest benefit is automation without trust. No need to wait for a bank to open or worry if the other person will hold up their end. The contract is the authority. These contracts work 24/7, and the rules can’t be bent, not even by the person who wrote them.

But there are challenges too. Sometimes the code has bugs, and if you make a mistake, the contract might do the wrong thing—no one can “fix” it after the fact. Famous hacks, like the DAO in 2016, lost millions because a loophole let someone drain funds according to the code (not the spirit) of the deal. That’s why testing and security are so important.

Still, the promise is real: open, unstoppable programs that anyone can use, understanding exactly how they work. Szabo’s dream is now hundreds of billions of dollars strong, powering everything from new financial systems to digital collectibles, with new uses popping up every year. In the end, smart contracts are about moving trust from people to code—letting anyone, anywhere, make deals that stick.