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Smart Contracts, Everything You Need to Know


Blockchain technology has brought many opportunities with itself. After Bitcoin’s birth as the first blockchain-based financial product, other features of the DLT found the chance to emerge. People increasingly understood the things a distributed ledger technology can handle, and one of the critical members of that list was the smart contract. 

Smart contracts were not new concepts in the age of Bitcoin. Their initial descriptions were developed about a decade past. But the birth of Bitcoin and the practical use of blockchain as the underlying technology proved the capabilities needed to create them. Smart contracts are integral parts of the blockchain industry today. They have affected many traditional sectors, including financial services, and show promise for disrupting the whole business world.

In simple words, smart contracts are here to automate processes using a trustless, secure, and decentralized infrastructure – AKA blockchain. Triggering of actions in smart contracts happens automatically based on the conditions recorded on the distributed ledger.

Although Bitcoin was the first network to show the practical use of blockchain, Ethereum was the first blockchain with complete capabilities to support smart contracts. Decentralized applications or dApps were born with Ethereum and showed great promise for the blockchain industry’s future. Years later, decentralized finance became the most crucial product of combining smart contracts with cryptocurrencies. Today, smart contracts are an essential component in almost every blockchain project.


What is a Smart Contract?

Smart contracts are computer codes or applications. They are shared between the contract parties. Each smart contract includes the rules and conditions of triggering the contract. Involving parties agree upon the rules before developing the smart contract. The promise of using a smart contract is to automate the process of activating the conditions. When the conditions are met, none of the parties can reject the results, and the contract will work automatically.

How does it Work?

As mentioned before, smart contracts were born to help users in situations that contracts are used. In traditional contracts, parties had to trust each other and trust intermediaries – to do the needed action like transferring money to transfer the agreed property. In those cases, the chances of fraud are high because everything is based on trust. Besides, the legal procedures of claiming a contract consume lots of time and money. On the opposite, smart contracts keep everything secure on the blockchain and help parties automatically trigger their contract.

Consider selling a property using smart contracts. When parties agree on a smart contract, they will hold the money and the right of possession of the property in a blockchain. As a result, everyone can see the situation of money and property. After the contract conditions are met – money is transferred, for example – the smart contract will automatically transfer the right of property. Because of the distributed, decentralized system, the chance of fraud is mitigated.

What is it for?

Smart contracts provide multiple benefits for users. They will change the fundamental aspects of business and personal life by eliminating lots of traditional contract risks. Smart contracts offer transparency to involved parties. They are time efficient because of eliminating the need for regulatory organizations and mediators.

All of the actions on smart contracts happen precisely. Because they use applications as the triggers and blockchain as the governing structure, they occur without common mistakes in traditional arrangements. Also, cryptography that is used widely in the blockchain structure guarantees the safety of smart contracts.


There are lots of use-cases for smart contracts that help everyone from business people to regular users. They are designed for automating contract-based actions so that you can leverage their benefits almost everywhere.

Financial services like loans, trading, lending, and insurance can use smart contracts to offer more reliable, safe services to users. DeFi platforms are the best examples of using smart contracts in the financial world. Insurance is one of their most famous services that uses smart contracts to offer better options.

There are lots of conditions the technology world can use smart contracts. Devices in the internet of things systems can be automatically configured using the safe blockchain structure. Consider triggering a unique action when a condition is met in an IoT sensor using smart contracts.

Supply chain, employment, and any traditional situation that uses contracts can leverage smart contracts’ benefits. Parties can automate and secure their actions using this blockchain-based service.

Are Smart Contracts Safe?

As mentioned before, smart contracts use cryptography and blockchain as two of their fundamental components. They guarantee the safety of the applications at a high level. Besides, the transparency feature of smart contracts plays a vital role in showing their safety. Although committing a crime even in smart contracts is possible, multiple security layers are applied in them. So, we can claim that smart contracts are way more safe and secure than traditional ones.

Advantages of Smart Contracts

The most crucial benefit of using smart contracts is automation. Involved parties in contracts should not worry about triggering the action, and everything is done by computer code. Besides, this automation happens very fast because of eliminating the middlemen.

smart contracts

The processes in smart contracts don’t need human intervention. As a result, there is less chance of manual error in them. Everything is done in a decentralized structure that reduces the chances of manipulation. 

Disadvantages of Smart Contracts

Like every technology product, smart contracts have their own risks and disadvantages. The technology is not mature enough yet. There are chances of risk and failure in some smart contracts. After all, every computer code has to go through strict evaluation processes to prevent any problem.

Bugs and programming mistakes can not be ignored in computer programs. There have been some incidents of misusing the bugs in smart contracts to breach them. After all, this technology needs more time to become mainstream, and after that, we can expect more active improvement in different parts of the industry.


Smart contracts are one of the most important – if not the most important – products of the blockchain industry. They offer everything you need to have ease of mind when working. From automation and speed to transparency and security, all is possible with smart contracts. They have shown their capability to disrupt the financial sector and will enter other more areas with that speed. After all, like all of the other blockchain-based products, smart contracts need time to become mature and mainstream.

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