1/ A thread on smart contracts
2/ Contracts, either oral or written, are the building blocks of a market economy. 
3/ The digital revolution challenges us to derive new digital, smart contracts.
4/ Smart contracts reduce the (mental) costs of traditional contracts by lowering the transaction costs associated with them, namely: search, negotiation, commitment, performance and adjudication
5/ The basic idea behind smart contracts can be seen in the vending machine. The machine takes in coins and via a "smart contract" dispenses a combination of change and Coke.
6/ The vending machine is a smart contract in which anyone with "coins" can participate.
7/ Smart contracts, powered by computation rather than human mental energy, will allow us to extend the logic of the vending machine to huge new areas.
8/ Consider an automobile. A smart contract would grant the ability only for the owner of the vehicle to operate the car from her smartphone but additional functionality could be added to reduce transaction costs.
9/ If the car was still being paid of, the creditor would have a smart lien protocol allowing them to shut down the owner's ability to operate the car if they fell behind on payments, much cheaper than a repo man.
10/ Once the final electronic payment for the car is made, the creditor would instantly lose the ability to shut down the vehicle.
11/ Currently, accounting controls allow large groups of humans to organize and work on vast projects like running hospitals and building jumbo jets.
12/ Smart contracts allow these controls to be embedded in software, reducting transaction costs and increasing social scalability.
13/ Smart contracts offer additional beneits to current accounting controls done on paper.
14/ For one, it will make it more secure. Checksums are crudge and forgibeable compared to cryptographic hashes.
15/ For another, There is no way to have a 3rd party firm audit your paper contracts without seeing all your data. It is possible with cryptography to selectively reveal data without revealing everything.
16/ Yet another, It’s not possible to expand the size of the market for contracts beyond national and institutional boundaries with existing accounting technology. It is possible with smart contracts.
17/ In conclusion, smart contracts combine protocols and user interfaces to secure relationships over public networks.
18/ In doing so, they reduce transaction costs between parties, allowing ever greater networks of people to collaborate.
19/ Sourced from @NickSzabo4's 1997 paper on smart contracts - nakamotoinstitute.org/formalizing-se…
