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What are Smart Contracts?

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3 min read

What are Smart Contracts?

Smart Contracts are digitally binding contracts between two or more parties that do not require a central authority for enforcement. Simply put, the clauses of any contract contain certain terms and conditions which can either fully or partially be digitized, eliminating the need of a central authorizer. Imagine legal contracts being enforced completely digitally. The terms of such contracts can often be broken down into simple transactions, which can then be carried out on the blockchain.

For example, a car loan could be completely enforced digitally using a smart contract. The electronic wallet and digital car keys can act as binding collateral. If the person using the car is unable to pay the monthly lease payment, the smart contract could automatically execute a partial payment, or even lock the keys to prevent the car from opening. The lessee is required to keep his account funded to make regular payments, while the lessor is required to provide digital keys that make the car accessible. The two can simply come to terms with each other using a digital interface, resulting in a trustless contract.


Ultimately, smart contracts are what make cryptocurrency such an appealing concept. Cryptocurrency offers a secure and decentralized manner of carrying out transactions between anonymous peers, without the need of a central authorizer. Smart contracts use computer code to employ cryptocurrency to behave in a specific way when triggered by certain conditions. Based on the terms defined in a smart contract, cryptocurrency will know when to move to another wallet or go back to yours.

Blockchain technology, which is the distributed ledger system backing this tech is the main reason cryptocurrency is secure, traceable and irreversible without the need of a central authorizer. Therefore, a smart contract is just code that tells digital coins to move around in a certain way, and since the transactions are executed over the blockchain, they are verifiable and can be used to hold everyone accountable.


Smart contracts can be used in a variety of different industries and markets.

  • They don’t necessarily have to be involved in the movement of funds.
  • They can be used in supply chain management or the maintenance of health records.

The flow of information and goods in these situations can also be digitized in a secure way and transacted over the blockchain ledger using a smart contract.

  • The major benefits of smart contracts center around convenience. If all parties can be held accountable to the conditions of a contract right off the bat, then a significant amount of time and cost normally needed to enforce a complex set of terms can be reduced.

When it comes to smart contracts, a lot of legal obstacles are avoided and long processing times are cut short, all while maintaining a high standard of security at a fraction of the cost.


As mentioned earlier, smart contracts can provide solutions to a wide range of problems in any field. They provide an efficient and secure exchange of goods and information, allowing for a lot of processes to be streamlined for the sake of convenience and privacy. Applications that employ smart contracts on a blockchain to perform various functions are called Decentralized Applications (also known as dAapps).

There are Dapp stores like “State of the Dapps”, which really showcase how blockchain technology can be used to carry out a wide range of things using smart contracts. From financial services and legal contract drafting to games where purchases in the game can account for real cryptocurrency, dApps can be used for many things. However, it is important to look through the White Paper of a Dapp to check for authenticity before jumping into it. This is normally available on the project’s website.


Basically, a smart contract is a computer code that represents the different clauses of a traditional contract. This could be applied in a variety of ways allowing people to deal with each other rather than going through a third party.

Applications of this process are called dApps, which are different uses of smart contracts to benefit off the digital security provided by a blockchain ledger. It’s important to research dApps before jumping into them. Look through a catalog of dApps and research its white paper on the project website.

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