Smart contract

Smart contract Basics

Smart Contracts are a relatively new technology that forms a key part of the wider blockchain revolution. In its simplest form, a Smart Contract is a type of digital agreement where the terms are embedded in its programming code. This unique approach to contracts allows for secured, automated transactions to occur when specific conditions are met.

How Does a Smart Contract Work?

A Smart Contract can fundamentally be seen as a set of rules and instructions that are composed programmatically. These rules and instructions are constructed in such a way that the contract, once created and deployed, can act independently without any further human involvement.

The key point here is the ability for it to self-execute, meaning that once the agreed conditions inscribed within it have been satisfied, the contract will automatically carry out the terms outlined without the need for any external approval or interaction.

This automation and eradication of reliance on an intermediary reduces the risk of manipulation, increases transparency and ensures a timely execution of the agreement between the parties involved.

Where are Smart Contracts Used?

Smart contracts have found primary adoption within blockchain based platforms such as Ethereum, which was designed with a built-in language allowing for easy programming of smart contracts. However, they can be and are used within other blockchain networks.

  • Financial services: Cryptocurrencies and tokens use smart contracts for initiating and managing transactions.
  • Real Estate: Smart contracts can facilitate, verify, or enforce the negotiation or performance of a contract in property sales and rentals.
  • Supply Chain: They can also be used in supply chain management for tracking goods from production to delivery.
  • Healthcare: They can securely manage patient data, verifying the authenticity of drugs and managing consent for clinical trials.

Despite being around for only a few years, Smart contracts are proving to be a promising technology that has the power to transform the way people and businesses engage in contractual agreements.

Advantages of Using Smart Contracts

Advantages of Using Smart Contracts

Smart contracts can be likened to programmable money. They are self-executing digital agreements built on blockchain technology, which presents a wide range of benefits. Among these benefits are the elimination of the need for a middleman, cost reduction, efficiency and accuracy increase, fraud risk reduction, and immense transparency.

Elimination of the Middleman

Traditional contracts often require intermediaries like banks, brokers, or solicitors to ensure trust and enforce obligations between parties. However, in a smart contract, the terms are enforced automatically and impartially by computer code, cutting out the need for and costs associated with intermediaries.

Cost Reduction

By eliminating the need for the middleman, smart contracts save money. The costs saved cover different aspects such as legal fees, broker fees, or any other fees typical with traditional contracts. These savings contribute to improved profit margins.

Increased Efficiency and Accuracy

Because they are automated, smart contracts speed up transactions and processes that would typically be slow due to manual handling. Automation also minimizes human error, increasing the level of accuracy in these contracts.

Fraud Risk Reduction

Smart contracts can significantly reduce the risk of fraud. Since they are decentralized and any changes to them need the consensus of the network, unauthorized and malicious changes are nearly impossible. This resilience to fraud and tampering increases the level of security and trust in the contracts.


Lastly, smart contracts offer immense transparency. All transactions and terms of the agreement recorded on the blockchain are visible to anyone who has access to the network. This transparency ensures that all parties can fully understand and adhere to the contract's terms and conditions.

In conclusion, the evolution of smart contracts ushers in a new era of doing business. By offering security, transparency, cost savings, efficiency, and fraud resistance, they're changing the face of contracting in today's digital world.

Drawbacks of Smart Contracts

Drawbacks of Smart Contracts

Smart contracts, an integral part of the blockchain technology supporting cryptocurrencies such as Bitcoin and Ethereum, have a multitude of applications and benefits, primarily in automating and enforcing contract terms and conditions. However, several potential downsides come with this innovative technology, which include legal implications, absence of central authority oversight, and possible technical glitches or coding errors.

Legal Disputes

One main obstacle facing the adoption of smart contracts is the difficulty in handling legal disputes. Given that smart contracts are self-executing and automatized, they leave little room for mediation or legal interpretation. They adhere strictly to the inputted code, which means the nuances and complexities of traditional contract law, such as the ability to appeal a decision or seek a judicial review, are often lost. Furthermore, in case of disputes, determining the legal jurisdiction can be complicated due to the decentralized and borderless nature of blockchain technology.

Absence of Central Authority

Smart contracts operate within decentralised networks which means there is no central authority managing transactions or resolving disputes. While many proponents of blockchain technology view this as a positive attribute, it opens potential risks. Disputes cannot be easily adjudicated or resolved, and fraudulent activities may be harder to prevent or rectify. In extreme cases, if a smart contract is tied to a high-value transaction, lack of oversight could potentially result in significant losses with no avenue for resolution.

Technical Issues and Coding Errors

Smart contracts are driven by computer code, and like any other software, they can be prone to bugs or coding errors. These technical mishaps can lead to unforeseen losses. Mistakes in the underlying code could result in the permanent loss of funds tied up in a smart contract. Similarly, a coding error could expose the contract to hacking, which is a critical concern in digital transactions involving cryptocurrencies. Moreover, once a smart contract is deployed on the blockchain, it becomes immutable - it can't be changed or revised, which means coding errors could persist and continue causing issues.

How Smart Contracts Work

How Smart Contracts Work

A Smart Contract, in the simplest terms, is a self-executing digital contract where the terms of the agreement between buyer and seller are written into code. They are predominantly built on the Ethereum platform and can reinforce, verify, or enforce the negotiation or fulfillment of a contract.

Blockchain and Smart Contracts

Smart Contracts operate on blockchain technology, a decentralized digital ledger system. This technology allows for the storage and replication of the contract's details across every computer participating in the network. Blockchain operates transparently, securely, and without the need for a central authority.

The Operation of a Smart Contract

The operation of a Smart Contract initiates when 'Party A' creates a contract with specific conditions and sends it to 'Party B'. Once 'Party B' accepts and signs the contract, it is verified on the blockchain and becomes irrevocable. This contract is then viewable on any computer within the network.

  1. Creation: Party A creates a Smart Contract with specific conditions and terms.
  2. Signing: Party B accepts and signs the contract using their private key.
  3. Verification: The blockchain network verifies the contract.
  4. Execution: The contract's terms self-execute automatically when the conditions are met.

Security in Smart Contracts

Smart Contracts offer enhanced security as all contract details are stored on a public ledger with cryptographic encryption. This ledger is also decentralized, meaning that no single party has control over it and the chances of manipulation or fraud are greatly reduced.

Cryptocurrencies like Bitcoin are often exchanged through Smart Contracts as blockchain technology ensures the safety of transactions by recording them on multiple computers.

Adaptability of Smart Contracts

Smart contracts are versatile and can be used in various sectors such as banking, real estate, healthcare, and more. They offer a cost-effective, secure, and efficient solution for executing agreements and transactions. Moreover, as they are self-executing, they reduce the need for intermediaries and make processes faster.

Applications of Smart Contracts

Applications of Smart Contracts

Smart contracts are self-executing contracts with the terms of the agreement directly written into lines of code. They allow trustless and decentralized transactions to take place without the need for third parties. These capabilities make smart contracts ideal for application in a multitude of sectors, including finance, real estate, and more.


In the finance sector, smart contracts have brought about significant transformations. One of the key areas is decentralized finance (DeFi), where they are used to automate the execution of financial agreements securely and efficiently. This includes lending and borrowing platforms, stablecoins, and decentralized exchanges.

  • Lending and borrowing platforms: These platforms leverage smart contracts to connect lenders and borrowers directly, eliminating intermediaries. This ensures transparent, secure, and immediate transactions.
  • Stablecoins: Smart contracts are vital in the creation and operation of stablecoins, cryptocurrency that pegs their value to another stable asset. They maintain the stability of these tokens and implement rules regarding their issuance and redemption.
  • Decentralized exchanges (DEX): These platforms enable users to trade cryptocurrencies directly, without the need for an intermediary. Smart contracts facilitate these direct trades, ensuring security and transparency.

Real Estate

The real estate sector can also greatly benefit from the automation and decentralization brought by smart contracts. They eliminate the need for lawyers or notaries, significantly shorten the duration of property transaction processes, and ensure transparent, immutable record-keeping.

  • Property Sales: Smart contracts can automate the buying and selling of property. Once the conditions stipulated in the contract are met, property ownership is automatically transferred to the buyer and funds to the seller.
  • Rental Agreements: Rental agreements can be made much more efficient and transparent through smart contracts. They can automate rent payments, security deposit refunds, and even enforce penalties in case of breached agreements.
  • Land Registry: The immutable and transparent nature of smart contracts make them ideal for land registry. Each transaction is recorded on the blockchain, ensuring a permanent, unchangeable record of ownership.

These are just some of the many applications of smart contracts across different industries. Their potential to revolutionize our everyday transactions is truly enormous, and we’re just beginning to uncover their full capabilities.

The Future of Smart Contracts

The Future of Smart Contracts

The world of cryptocurrency is dynamic and unpredictable. However, one feature that continues to gain momentum creating a buzz is the concept of 'Smart Contracts.' These are automated contracts that facilitate transactions and agreements without the need for intermediaries. Based on current trends and the evolving nature of blockchain technology, we can make a few predictions about the future of smart contracts.

1. Automation and Efficiency

Smart contracts offer the potential for greater automation in many industries. These contracts execute transactions automatically once conditions are met, eliminating the need for manual facilitation. This could result in significant cost-saving and efficiency gains for businesses adopting this technology. It is predicted that sectors such as real estate, supply chain, and healthcare will significantly benefit from smart contracts, potentially revolutionizing their operational frameworks.

2. Adoption of Blockchain Technology

With the advancement and adoption of blockchain technology, the use of smart contracts is set to become more widespread. Moreover, we could expect significant enhancements in terms of connectivity and interoperability between different blockchain platforms, thereby increasing the versatility and usability of smart contracts.

3. Regulatory Challenges

However, smart contracts don't come without challenges. They are currently unregulated, which increases their risk profile. Many believe that the future will bring about increased scrutiny and regulation in the cryptocurrency industry. Each country may set their guidelines and laws surrounding the use and legality of smart contracts, which could shape their evolution.

4. Security Improvements

Security issues surrounding smart contracts are another concern. As these contracts continue to be used more broadly, their security will need to improve. This likely means that they may undergo significant development and improvements in the future. Given the increased risk of cyber attacks in the digital age, ensuring security will be a top priority for smart contracts.

5. Greater Accessibility

Presently, smart contracts and blockchain technology can seem complex and inaccessible to the average user. In the future, there will likely be a push to make smart contracts more straightforward and accessible to everyone. User-friendly interfaces, educational resources, and streamlined processes will be paramount to driving wider adoption of this technology.

Regardless of predictions, the evolution of smart contracts will undoubtedly be shaped by a myriad of unpredictable factors. While significant potential benefits are promising, substantial obstacles and challenges remain that will need to be overcome for their widespread implementation.