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What is Smart Contracts?

Smart contracts or self-executing contracts with the terms of the agreement written directly into lines of code. These are agreements, but rather than being enforced by one of more human parties, these are programs which automatically enforce and execute the terms under certain conditions (again without a middleman). This blockchain tech produces smart contracts ensuring immutability, security, and transparency. This article analyses the concept of smart contracts and their applications, advantages, and disadvantages.

Understanding Smart Contracts


Smart contracts are simply programmable agreements manifesting as computer code on a blockchain network. These contracts follow predefined rules and pesforming actions on the agreement, with which they have been programmed and work without human intervention.

Key Components

  • Code: The terms and conditions of the contract are written in code, which dictates what happens when certain conditions are met.
  • Decentralized Ledger: Smart contracts are secure because they are executing on a ledger that every updates and every transaction are led to a transparent and immutable record.
  • Triggers: Specific conditions or events that trigger the contract processing.
  • Autonomy: Smart contracts are programmed to execute when certain conditions are met the moment they are deployed.assertEqual to auto-pilot mode.

How Smart Contracts Work

Step-by-Step Process

  1. Creation: The contract creator writes out a small computer program formulating the elaborated terms, conditions and actions to be performed — this is where the Smart Contract comes into play.
  2. Deployment: The contract is deployed to unit tests and the Ethereum mainnet where it gets stored and can be executed.
  3. Trigger: The contract is triggered when certain predefined conditions are fulfilled (a payment is done, a date is hit)
  4. Execution: The contract starts performing the agreed-upon actions, such as moving funds, minting tokens, or updating records.
  5. Verification: The blockchain network confirms to the execution of transaction and enters the same to its ledger.


Imagine a simple smart contract for a rental agreement:

  • Terms: The tenant pays rent to the landlord on the first day of every calendar month.
  • Condition: Payment of a specified amount in cryptocurrency.
  • Action: The tenant pays the landlord back Income Share Agreement (ISA): Through a smart contract, this structure allows students to fund their education at 0% interest and 0% collateral. When the student signs up for an ISA, the smart contract will ensure that the amount of airtime is transferred to the wallet specified by the student to the mobile phone company each month.

Advantages of Smart Contracts

Automation and Efficiency

  • Elimination of Intermediaries: Smart contracts eliminate the middleman — such as lawyers or a broker — and reduce both costs and time delays.
  • Speed: As automated execution, bookkeeping, and the efficient running of transactions will be less time tacking and faster.

Security and Transparency

  • Immutable Ledger: All contract terms and transaction records are immutable and tamper-proof, meaning that they cannot be changed by any third party.
  • Transparency: Collective contract transparencyCage1 enables all parties to the contract to share the terms and execution of an agreement.

Accuracy and Reliability

  • Precision: If something is written in a smart contract it is happening exactly like that, which stop errors and misunderstandings happening.
  • Consistency: The fact that they are automated is already reason enough to trust that every test will be executed reliably.

Cost Savings

  • Lower Transaction Costs: smart contracts eliminate intermediaries, and hence decrease the administrative overheads which in turn drastically reduce the transaction costs.

Applications of Smart Contracts

Financial Services

  • Decentralized Finance (DeFi): Smart contracts supervene decentralized financial services like lending, borrowing, trading, outside the basic sphere of banks.
  • Insurance: Settlements for automated insurance claims based on predefined conditions.

Supply Chain Management

  • Traceability: Smart Contracts store every movement of goods on the ledger pad and carry out the work as per the application.
  • Automated Payments: Pays your suppliers as per delivery and verification done by the system.

Real Estate

  • Property Transfers: You can automate property transfers and payments, removing the need for escrow services and legal intermediaries.
  • Rental Agreements: Use smart contracts to implement self-executable lease agreements and not only get timely payments but also secure transparency over the rental data.

Legal and Compliance

  • Regulatory Compliance: Ensure regulatory requirements and compliance standards are automatically enforced.
  • Digital Identity: Check and validate the digital identity and digital identity verification (helps to combat fraud, enhance security)


  • Patient Records: Secure and transparent way to manage patient records and health data.
  • Insurance Claims: Fully automated insurance claim processing and settlement.

Challenges and Considerations

Legal and Regulatory Issues

  • Enforceability: Technology and legal might vary based on jurisdictions for purpose and enforcement.
  • Regulatory Compliance: It is one of the most sensitive, complicated, and hazardous activities out there regarding regulatory compliance.

Security and Bugs

  • Code Vulnerabilities: Code bugs or vulnerabilities often result in unexpected side effects or potential for exploitation.
  • Auditing: Code auditing and security verification are required and critical in maintaining trust and reliability.

Complexity and Adoption

  • Technical Expertise: To allow for the deployment of smart contracts, they need to be coded and a significant amount of technical expertise is required to create, deploy and interact with smart contracts.
  • Adoption: As smart contracts require a shift in behavior and need for understanding of these complex contracts among users, it may take some time for smart contracts to be adopted on a wide scale.


  • Network Limitations: By design, blockchain networks are scalable at the cost of the performance and effectiveness of your smart contracts.


Smart contracts automate the execution and enforcement of agreements by incorporating blockchain technology to make them automated, secure, and transparent. They bring many advantages to industries such as finance, supply chain, real estate, healthcare and, among other things, by intermediaries and lower costs.

But making optimum use of their capabilities will call for addressing key issues related to legal enforceability, security, technical complexity and scalability. Moving forward and as technology and has been looking to increasingly develop smart contracts which promise to be quite the key contribution to this future of digital transaction and decentralized systems.

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