Formalizing and Securing Relationships on Public Networks

Smart contracts combine protocols with user interfaces to formalize and secure relationships over computer networks. Objectives and principles for the design of these systems are derived from legal principles, economic theory, and theories of reliable and secure protocols. Similarities and differences between smart contracts and traditional business procedures based on written contracts, controls, and static forms are discussed. By using cryptographic and other security mechanisms, we can secure many algorithmically specifiable relationships from breach by principals, and from eavesdropping or malicious interference by third parties, up to considerations of time, user interface, and completeness of the algorithmic specification. This article discusses protocols with application in important contracting areas, including credit, content rights management, payment systems, and contracts with bearer.