Smart contracts are programs that run on IT infrastructures that blockchain technology operates. These are possibly the most valuable tools that are associated with blockchain. Additionally, they possess the power to transfer everything from bitcoin and fiat currency to goods transported worldwide. Smart contracts have many beneficial features, including security, efficiency, and reliability. 

Here’s what smart contracts are, what they do, and how you may use them in the future; keep reading and learn more. 

What Is a Smart Contract?

Smart contracts are computer protocols or programs for automated transactions that are stored on blockchain technology and run in response to meeting certain conditions. In simple words, these are self-executing business automation applications that run on a decentralized network like blockchain. Smart contracts can cooperate with distributed autonomous organizations (DAOs), issue new cryptocurrency tokens, and enforce other legal and financial agreements. It’s an agreement (in the form of computer code) between two people which runs on blockchain technology. 

As you know, blockchain is a decentralized platform, so smart contracts are stored on the public database, which is why it’s unchangeable. Also, all the smart contracts transactions can be sent automatically without interference from a third party because of the blockchain decentralized system. It makes the transactions secure, transparent, traceable, and irreversible. There is no existence of a third party; the agreement is between the computer and user, that’s why it’s trustable. Simply, this software diminishes the involvement of an intermediary, which is why the participants can find outcomes without time delay or interruption. Undeniably, smart contracts are the demand of contemporary society and advanced approaches. 

How Does a Smart Contract Work?

Smart contracts work by following digital “if,  when, and then” statements written into computer codes on the blockchain between two or more parties. If one group’s predetermined conditions are met, the agreement can be honored, and the contract is considered completed. 

Let’s suppose that Michael is interested in buying Kate’s Ferrari. The agreement of this buying and selling of Ferrari between Michael and Kate is formed on the blockchain using a smart contract. Similarly, this smart contract consists of an agreement between both parties. Michael will lock funds into a smart contract that can only be approved when Ferrari delivers. When Kate gives Ferrari, the funds will automatically be released (when the legal contract’s conditions are met). On the other hand, if Kate doesn’t deliver the car and cannot meet the deadline, the contract will be canceled, and the funds will be reversed. 

This is just one example of how smart contract work. According to the above example, buying or selling has become effortless for both parties. There is no need to pay extra commissions, no more delays, and no fear of the risk of fraud. Everything is transparent and reliable in a smart contract; even if your contract is canceled for some reason, still your amount is safe and can be reversed. You don’t need to hire a lawyer or a broker to prepare or process the agreement. 

A smart contract can contain numerous stipulations to satisfy the participants that the job will get done perfectly. To prepare the terms and conditions, the participants must clarify how their transactions and data will be represented on blockchain technology. Further, they must agree on “if/when then” rules governing those transactions. Once the contract is established, both participants have to agree on the conditions then the smart contract will be considered complete. 

Who  Can Create A Smart Contract?

Anyone having computer programming expertise can create the code for smart contracts. The smart contract developer defines the rules for how this application works and manages transactions. In addition, you can get assistance from companies that provides smart contract development services, online tools, and web interfaces to simplify structuring smart contracts. 

Benefits of Smart Contracts

Efficiency, Accuracy, and High Speed

Once the conditions are met, the contract will be immediately executed. As mentioned earlier, smart contracts are automated and digital, so no paperwork is required. Similarly, the agreement will be error-free and accurate; you don’t need to care about correcting errors and similar problems. 


One best thing about smart contracts is that it is highly safe and reliable because the whole software runs on the decentralized blockchain technology. No involvement of the third party will happen. Similarly, you don’t need to worry about information being tampered with for personal gain. Both parties own the same information, which diminishes the possible manipulation of the contract clauses. Additionally, the contract is on the blockchain, so it provides the participants the security and trust that the information and data the contract consists of is only available for both parties throughout their life. Hence, smart contracts can’t be changed, so you can blindly trust this technology. 


Blockchain transaction records are highly secure and encrypted, so smart contracts are nearly impossible to hack. Additionally, each entry on the distributed ledger is connected with the entries before and after. Similarly, if a hacker is interested in hacking it, he would have to change the entire chain to change a single record. 

Cost Effective

When everything is consist of computer coding, there will be no need to hire a lawyer or broker to create legal agreements and contracts. Smart contract eliminates the need for intermediaries; you don’t have to rely on a third party to verify the contract terms. Instead, you can save costs, time, and effort with digital contracts. 

Potential Disadvantages of Smart Contracts

Requires Technical Computer Knowledge

Smart contracts are simple to use but complex to create. However, if you want to create one for your business needs, you must approach a smart contract developer who can perform the job perfectly. Individuals who know computer coding can ideally create a smart contract for you. Also, you can get assistance from several IT companies who offer top-notch smart contract development services to provide people ease. 

Difficult to Terminate or Amend

The process is quite complex if all participants want to change or amend the smart contract. It happens because of the immutable nature of blockchain technology. Uniformly, an attempt to terminate or amend the agreement can increase costs and human error chances. Thus, it’s absurd to terminate a smart contract if any party notices an error that harms the participant’s interest. 

Limited Adoption To Date

There are numerous advantages of smart contracts blockchain, yet they are not commonly used outside the cryptocurrency community. This limited adoption of the wonderful innovation is hindering its potential. 


Smart contracts have the potential to change business operations positively in the future. Moreover, it can make the processes simple, secure, and reliable and reduce fraud, time delays, and costs. Undoubtedly, smart contracts have numerous advantages, but currently, some potential downsides need to be addressed. The technology is in its early stages, so with time, it’s possible that the drawbacks can be discovered. 

Many people believe smart contracts are beneficial for the future, while others don’t agree and are doubtful. Therefore, better for all is to wait and see what the next few years will bring rather than pass judgment on this technology.  

We hope that now you know the answer to the golden question, “what is a smart contract”? Feel free to ask relevant queries in the comments section.