Nick Szabo first proposed the concept of "smart contracts" in 1994, and expanded the idea in a 1996 article titled "Smart Contracts: Building Blocks for Digital Markets" published in Extropy magazine. These papers laid the intellectual foundation for what would become Ethereum's core innovation: a blockchain capable of executing arbitrary programmable agreements.

The 1994 Paper

Szabo's original 1994 paper defined a smart contract as:

"A smart contract is a computerized transaction protocol that executes the terms of a contract. The general objectives of smart contract design are to satisfy common contractual conditions (such as payment terms, liens, confidentiality, and even enforcement), minimize exceptions both malicious and accidental, and minimize the need for trusted intermediaries."

He identified existing technologies like POS terminals and EDI (Electronic Data Interchange) as crude predecessors, and pointed to digital cash protocols as more sophisticated examples. Szabo outlined the cryptographic building blocks that could enable smart contracts: Byzantine agreement, symmetric and asymmetric encryption, digital signatures, blind signatures, secret sharing, and multiparty secure computation.

The 1996 Revision

The 1996 expanded version, "Smart Contracts: Building Blocks for Digital Markets," appeared in Extropy #16 and developed the concept further. Szabo explored how digital protocols could embed contractual clauses into hardware and software, using the metaphor of a vending machine — the simplest form of a smart contract — where inserting coins triggers automatic delivery of a product.

Influence on Ethereum

Vitalik Buterin directly cited Szabo's smart contract concept in the Ethereum white paper as the inspiration for building a blockchain with a Turing-complete programming language. While Bitcoin's scripting system could handle simple conditions, Ethereum was designed from the ground up to execute the kind of arbitrary, self-enforcing agreements Szabo had envisioned two decades earlier.

The term "smart contract" became the standard name for programs deployed on Ethereum, and Szabo's papers remain among the most important intellectual precursors to the entire programmable blockchain movement.