Smart Contracts

Smart Contracts are self-executing contracts that contain the terms and conditions of an agreement between the two parties. The smart contract works just like a contract in the real world. The only difference is that they are digital. Smart contracts are tiny computer programs that are stored inside the Blockchain.

Ethereum is the most popular when it comes to smart contracts. Basically, it’s a place where code can be written. If these codes represent some type of contract, then we can them smart contracts. In these contracts, your funds can be locked up while certain conditions are met.

The use of this technique allows us to implement a large number of banking products without involving the central government or central bank. Smart contracts could be used for automatic payments, investments, and other things. If certain conditions are met, smart contracts can perform transactions automatically without the need for intermediary companies or entities.

Smart Contracts: A Brief History

Nick Szabo, an American cryptographer and programmer, first introduced the concept of smart contracts back in 1996, before blockchain was invented. Smart contracts, in Szabo’s view, are digital protocols for information exchange that automate the execution of transactions based on predefined conditions while maintaining control over the whole process.

Working of Smart Contracts

A smart contract is a set of computer protocols or, more simply, a set of computer codes. In this code, all agreements made between the parties to the transaction are incorporated into the blockchain. The smart contract provides a form of “if-then” instruction.

A simple example would be: If Party A transfers money, then Party B gives the apartment to the recipient. Participants can be individuals or organizations, and there is no limit to the number of participants. The smart contract executes the transaction after all the conditions have been met and ensure that the agreement will be kept.

They then develop the logic in a smart contract-writing platform and test it to ensure that it works the way it should. A security review is done after the application has been written by another team. Depending on the situation, this could be a departmental expert or a firm specializing in smart contract security. As soon as a contract has been approved, its deployment takes place on a blockchain or in another distributed ledger system.

Upon deployment, the smart contract is configured to listen for updates from a cryptographically secure source known as an oracle. When the appropriate events are received from one or more oracles, the smart contract is executed.

The functionality of Smart Contracts

The Smart Contract is not a legally binding contract despite its name. Programmatically, they execute a variety of tasks, processes, and transactions according to the conditional logic that has been programmed into them. In order to make this execution legal, the parties must enter into legally binding agreements.

Applications of Smart Contracts and Blockchain

Decentralized Application

Smart contracts are decentralized applications that execute business logic in response to events. In order to implement a smart contract, money can be exchanged, services delivered, content protected by digital rights management unlocked, or data can be manipulated. In addition to the enforcement of privacy protection, smart contracts allow selective disclosure of personal data under certain circumstances.

Encryption of data

Security is maintained through cryptography mainly through public infrastructure, the public and private key infrastructure. Blockchain technology provides immutability and security which is perfect for storing smart contracts. Since the data in smart contracts are encrypted, they are stored in a shared ledger, making it virtually impossible to lose the information they contain.

A Flexible approach

The flexibility of the blockchain technology utilized in smart contracts is another benefit. The blockchain can be used to store almost any type of data, and it provides developers with a range of transaction options.

Cost-Effective Transactions

Smart contracts are helping to streamline business processes and reduce transaction costs through safer, more efficient and cost-effective transactions. Smart contracts require digital signatures and verification, which the parties to the contract can decode only by using their public keys.

Advantages of Smart Contracts

Listed below are some benefits of smart contracts:

1. Execution time

The process of implementing smart contracts takes place automatically, and in most cases doesn’t require personal involvement. It just takes one minute for the process to be executed.

2. Independent

A smart contract eliminates the possibility of a third party interfering. It is the program itself that provides a guarantee for transaction integrity, so unlike middlemen, it will not be subject to question before the transaction takes place.

3. Dependability

There is no way to alter or delete the data entered into a blockchain. The smart contract will protect the other party in the event of one party not fulfilling its obligations.

4. Error-Free

As a result of the automated transaction execution system, and without any involvement from a third party, contracts are executed with great accuracy.

5. Cost-savings

Businesses can save a lot of money by using smart contracts because they eliminate third parties and reduce operational costs, in addition to offering opportunities for the two parties to improve their working relationship.

6. Data modification is difficult

Since the data is stored as part of a decentralized system, there is little possibility of changing it.


In spite of the fact that smart contracts do not require intermediaries, users need to believe that the contract code is written correctly, which is a big ask given that there are still plenty of security concerns. Over the years, several bug exploits have been discovered that allow bad actors to steal funds from users. Compared to their legal counterparts, smart contracts still lag behind, since they cannot encompass as many aspects, however, they’re quick to execute and cannot be misinterpreted.