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Smart Contracts

What is Smart Contract?

The smart contract is simple to understand and can be summed up as a script that runs on the blockchain and executes the programmer’s commands when a series of conditions are met.

The concept of smart contracts can be viewed as a pioneering innovation since they enable the elimination of reliance on third parties for transactions. To understand a smart contract, we must first understand what a standard contract is and how it works.

smart contract

What is a typical contract?

Usually, there are different types of contracts used to describe typical arrangements. For example, Amanda pays Alex monthly to use Alex’s house, referred to as a “tenancy agreement,” or Mary guarantees to cover Sara’s car in case of an accident.

Similarly, computer codes can also serve as contracts for the user. For instance, when shopping online, some regulations specify the rules the user is required to follow. If the user pays sufficient amounts, they can download the item. Otherwise, they will receive an error message.

In the ordinary course of business, contracts can only be enforced by trusted intermediaries, such as banks and governments, using centralized computer servers.

The difference between a smart contract and a traditional contract

Blockchain technology allows smart contracts to be created without intermediaries, making them more efficient.

By activating a code on a blockchain, two parties can review and implement their agreement without requiring an intermediary to be involved.

If smart contracts are executed on a blockchain like Ethereum, no one can stop them from expanding. By utilizing smart contracts in your programs and projects, you will be able to initiate projects and programs that will never require any intermediaries to operate.

Blockchain smart contracts are also referred to as decentralized applications (DAPPs) since they cannot be modified once they have been registered on the blockchain.

It works like vending machines found in public places such as subway stations and public restrooms. The device automatically processes your payment when you insert your money into the vending machine. It delivers your drink without any involved middlemen.

How does a smart contract work?

How smart contract work?

According to what we have explained, smart contracts are essentially lists of terms implemented on a blockchain, and one of the characteristics of a blockchain is its decentralization.

It is almost impossible to interfere with the execution of a smart contract or manipulate it because all blockchain members will have a copy of the smart contract during the complicated technical process of registering smart contracts on a blockchain. The smart contract is not managed by a single server or central agency but by the entire blockchain community.

Implementation of smart contract

As soon as the programmer writes a smart contract, it is registered to the blockchain as a transaction. This is done through a client, a software application that contains a direct connection to the blockchain.

For those who wish to develop smart contracts on the Ethereum blockchain, it is essential to learn the Solidity programming language, which is one of the many programming languages available for Ethereum smart contracts.

Using a transaction will allow the user to interact with the contract that has been registered. Suppose a transaction is added to a contract. In that case, the user will be able to monitor its progress at any time by checking the status of the transaction. However, if all the user needs to do is check the quality of the contract, there is no need for the transaction.

After this, the nodes execute the contract using their Ethereum Virtual Machine, and the inputs from the nodes are evaluated within the Ethereum Virtual Machine. This virtual environment is used to enforce agreements. If the transaction fee is sufficient, the transaction will be performed.

The initial concept of smart contracts might seem confusing to you, but don’t worry because their execution involves a lot of technical complexity. We recommend you familiarize yourself with the Ethereum protocol to better understand how they work.

It is not necessary to understand how smart contracts work in most applications to make substantive use of them, just as it is not needed to know how the Internet operates to make effective use of it.

What do I need to create a smart contract?

In addition to the items listed above, there are several other things you need to consider when creating a smart contract; for example, the following are essential:

Access and contract issues

The application must be able to have access to the product or service under the contract to be able to control them automatically during the supply process. For instance, if the agreement states that a file must be delivered upon receiving money, it must be allowed access to the file.

Contract terms

When certain conditions are met, a smart contract is executed. These conditions are specified in the smart contract’s programming, and all contract participants must agree. All contract participants must sign the contract terms to activate the contract.



Oracle would be required to process the information provided by the contract if, for example, the data is to be collected concerning the weather.

Exclusive platform

Usually, smart contracts are created on a specific platform and distributed among its nodes. To register smart contracts, you will need a client application directly connected to the blockchain of the platform you are using. Ethereum is the most popular platform for running smart contracts.

Application of smart contracts in real life

As a result of implementing these contracts, there is a multitude of great ideas that can be implemented. These contracts can be beneficial whenever we want to eliminate the need for trust and ensure efficiency in any process. Some of the most important ones that are currently being implemented are as follows:

Smart Contract and Supply chain 

Blockchain and supply chain

As a result of blockchain technology and smart contracts, supply chains have been prevalent in recent years. These technologies are widely used by businesses involved in the supply chain, including grocery stores, warehouses, farmers, and retailers.

Businesses need to be able to track products and report payments to increase accountability. This can be achieved through smart contracts, which streamline and incentivize everything connected to the supply chain.

Suppose, for example, that an upscale grocery store is waiting for the arrival of apples from a continent far away. Although a certain quantity of apples was purchased, the store has yet to receive the weight of the apples.

A human error may cause this process to become muddled due to stealing apples or false reports that the shipment has arrived properly. Such an incident can negatively impact the entire supply chain and is not known until the merchandise is delivered to the store.

The grocery store can automate the checkout process at every stage of the delivery process by using smart contracts. Although these steps already exist in typical supply chains, they are manually carried out by the store. By implementing smart contracts, the grocery store can automate these steps using smart contracts.

Any work owned by a person, especially music, photographs, or videos, is likely illegally copied, posing numerous problems. The person who counts the shipment and records the entry may lie and make it appear as if the shipment was lost along the way. Supply chain theft is a significant problem in the US that costs around $35 billion annually.

Smart contracts eliminate the need for trust in the way they are operated. The contract can even be set up so that the price will not be paid until the apple supply is met. With such a contract, parties should be more cautious when procuring goods and services.

Health systems and smart contract

In the healthcare system, smart contracts record and transmit data securely. Encryption software, such as EncrypGen Encryption, is currently being used to encrypt and protect patient data to prevent unauthorized access.

Patients are responsible for controlling their data. Researchers who wish to access an individual’s information will have to pay for it, and you may decide whether or not to sell it.

Initial Coin Offering (ICO)

If you want to start your blockchain project, you can build it on the Ethereum network. Of course, you need money for this. Now how can this money be provided? The answer is ICO.

If you are interested in creating your blockchain project, Ethereum provides an excellent platform. Of course, you will require funding to accomplish this, but the best way to raise funds is through an initial coin offering (ICO).

A digital token is an initial offering that serves as a financing mechanism for new blockchain-based applications. To create a smart contract and token for your unique project, you will need to create a smart contract. For example, you can issue ABC tokens if your project requires $10 million.

For example, let’s assume 10 million dollars is the equivalent of 10,000 ether units, so you place 100,000 ABC tokens in the smart contract. Each ABC token will be worth 0.1 ether units at any given time, so if each ABC token is sold, you receive 10,000 ether units.

Election and smart contract

It is possible to prevent manipulation and fraud in elections by placing a copy of the voting results on the blockchain. The data will be transparent, encrypted, and anonymous.

Management and smart contract

It is possible to use smart contracts to pay employees based on their working hours rather than rely on your accountant for this. Smart contracts are capable of performing routine tasks such as automating the process.

Intellectual Property

Any work owned by a person, especially music, photographs, or videos, is likely illegally copied, posing numerous problems. Smart contracts can specify the conditions for using a work, such as paying a token for its use.

Smart Contract in Insurance

Smart contracts can revolutionize the traditional insurance system by eliminating the need for intermediaries and automating the processes of paying claims, collecting insurance premiums, and renewing policies. Insurance companies are working on this to generate revenue by utilizing smart contracts.

The use of smart contracts is also widespread in a range of fields, including banking, transportation management, and the Internet of things.

Advantages of smart contract

 1. Elimination of intermediaries:

Smart contracts adhere to principles of autonomy in that both regulation and implementation are conducted autonomously without requiring intermediaries and involving only the parties involved in smart contracts.

2. Reliability:

With the use of encryption and a distributed platform, there is no risk of contract loss or revenue loss due to fraud, nor is it possible to unilaterally terminate a contract.

3. Security:

Using the encryption system in smart contracts, the contract will not be susceptible to tampering, and any sensitive data won’t be compromised.

4. Cost reduction:

Smart contracts do not entail paying notary fees by real estate transaction companies or other types of intermediaries.

5. Diversity:

To meet your transaction needs, there is an expansive selection of smart contracts available to you, from which you can choose the one that is most appropriate.

6. Efficiency:

In contrast to traditional contracts, smart contracts do not require paper and can be sent and transferred much more quickly. Since neither party is present during the signing, smart contracts are more efficient than traditional contracts.

What are the problems of smart contracts?

While smart contracts offer a lot of great potential, they do not yet work perfectly and cannot be utilized on a large scale by themselves at present. Here are some of the significant problems they currently face:

The human factor

Because the smart contract code cannot be updated once it is registered on the blockchain, the bug can no longer be corrected. Additionally, errors can occur within the smart contract code since programming is involved.

To illustrate, the DAO project in Ethereum had a security vulnerability that resulted in more than 50 million dollars being stolen from the Ethereum network. The developers needed to perform a hard fork to restore the funds, thereby creating a new Ethereum network.

The problem of Oracles

An Oracle database can be used to process contracts, which provides external data on which the contract can be based.

The two people may wager on the weather prevailing in Sydney tomorrow. Alex might predict rain, while Sara might predict sunshine. The two people will choose between them based on whom correctly predicts the weather.

Suppose Alex and Sara utilize a smart contract based on the official weather site forecast. In that case, they can execute these provisions by the estimates.

Alex will win if Sydney’s weather remains wet; Sara will succeed if Sydney’s weather remains sunny.

The official weather forecast site for the project is Oracle. Hacks or changes in weather information can corrupt the smart contract since the weather site is a centralized service. Oracles challenge the lack of trust in smart contracts.

Legal status

Since government institutions have not yet established legal frameworks for smart contracts, new problems will arise. Smart contracts are not considered to be approved as property ownership.

Implementation costs

Programming is necessary for creating smart contracts. If you wish to implement smart contracts correctly, you should have access to an experienced programmer.

Regular users will be able to create smart contracts through their computers in the future by only clicking a few buttons. Still, these services will not be capable of creating complex smart contracts.

Reduced privacy:

Information in blockchains is distributed across all nodes in the network. Therefore a blind audit might enhance the security of the blockchain. Still, it would also obscure the privacy of network participants.


Smart contracts differ from traditional paper contracts because they function differently once established. Once a smart contract has been found, it can be enforced immediately, making it impossible for both parties to change the conditions. Smart contracts have applications in many fields, including health insurance, voting, initial coin supplies, and supply chain management.


1- Why are smart contracts trustworthy?

As smart contracts are based on preconditions, they cannot be modified after they have been signed since they require them to meet specific requirements

2- Who can write smart contracts?

Anyone can create smart contracts and deploy them on the blockchain. You only need Solidity programming skills and sufficient Ether to accomplish this.

3- Why do they use the Solidity programming language to write smart contracts?

Solidity brings various features to Ethereum, allowing people to use non-fungible tokens (NFTs) on the Ethereum blockchain.