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Smart Contracts

A smart contract is tamper-resistant software that executes on a blockchain network when preset criteria are met. Additionally, they may automate a process by activating the next activity based on the fulfillment of certain criteria.

Smart contracts are often used to automate the implementation of an agreement so that both parties may be confident of the conclusion instantly and without the participation of an intermediary.

Due to the programmatic nature of smart contracts, they save a lot of time relative to manually executed contracts.

Some currently available technologies, such as vending machines, point-of-sale terminals and cards, digital cash protocols, EDI, and algorithmic distribution of public network bandwidth, might be considered rudimentary applications of smart contracts.

Origin of Smart Contracts

The coinage of the term "smart contracts" can be credited to American computer scientist and blockchain pioneer Nick Szabo. According to him, smart contracts are computerized transaction protocols that execute terms of a digital contract.

In 1994, Szabo also used the term to refer to "a set of promises specified in digital form, including protocols within which the parties perform on these promises."

How Do Smart Contracts Work?

After deploying a smart contract and defining its transaction protocols, its structure cannot be changed, although it can be configured to receive upgrades. Similar to a value transfer on a blockchain, deploying a smart contract on a blockchain is accomplished by submitting a transaction from a blockchain wallet.

Through transactions, end-users engage with a smart contract. Specific predefined criteria must be satisfied and validated for a transaction to occur in a smart contract. When the transaction is complete, the blockchain is then updated. These updated transactions cannot be altered, and the results are only visible to persons who have been given permission.

Real-World Uses of Smart Contracts

Due to the versatility of smart contracts, they are useful in many real-world scenarios, including insurance, escrows, clinical trials, supply chain management, automation of government operations, record keeping, real estate, and payment automation.

Loans and Mortgages

Adoption of smart contracts may aid in the improvement of financial services, such as mortgages and loans, as the current approach continues to rely heavily on mostly obsolete technologies. The whole process can be digitized and automated using smart contracts. These smart contracts can be established to track loan repayments and provide access to digital documents automatically.


Smart contracts can significantly enhance the insurance claim processing procedure in a variety of ways. For example, in automobile insurance, vehicle maintenance records and accident and ownership histories can be regularly tracked by smart contracts. This will help to reduce fraudulent claims drastically.

Peer to peer transactions

Smart contracts are applicable to a wide variety of peer-to-peer transactions. In these transactions, the intermediaries are eliminated, and the smart contract automates the transactions. This automation helps to save time and eliminates the extra expense associated with the conventional process.

Record keeping

With the aid of smart contracts, blockchain technology can be used to store records and databases while automatically renewing them based on the preset criteria. This stored information can also be safely encrypted.

Benefits of Smart Contracts

Smart contracts provide an innovative method of resolving issues. Some of the benefits of smart contracts include:


The working process of smart contracts is automated and cannot be interrupted. This implies that they cannot be canceled or interrupted once they have begun execution.

Speed and accuracy

Due to the digital and automated nature of smart contracts, they are promptly and accurately processed when a preset condition is satisfied.


Because records in smart contracts are open to participants, they are known to be transparent.


Due to the transparent nature of smart contracts, the whole process is trustless. There is no reason to fear bad actors can manipulate the information for personal gain.


As previously mentioned, blockchain technologies employed in the use of smart contracts are encrypted, making them very difficult to hack.

Cost reduction

Smart contracts eliminate the need for intermediaries; therefore, operating expenses are reduced because fees that would go to those middlemen are removed.

Limitations and Challenges of Smart Contracts

Intolerant to change

The major limitation involved in smart contracts is intolerance to change. Once a smart contract has been deployed with its criteria defined, it can be very hard to change. This means any errors in its code will be very hard to correct.

Difficult to modify

Smart contracts can also be challenging to manage due to the fact that they are typically designed in ways that make them difficult or impossible to modify.

Prone to attacks

Smart contracts are also prone to attacks from hackers and security breaches.

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