What Is a Blockchain Smart Contract?

What Is a Blockchain Smart Contract?

Blockchain and smart contracts are interconnected terms, coexisting together. Smart contracts are coming instead of standard ordinary contracts in a lot of spheres. Why more businesses and entrepreneurs start utilizing crypto contracts instead of traditional ones? How smart contracts are different and what advantages do they have? We are suggesting finding out.

What is a smart contract?

In simple terms, smart contract is a digital protocol created to improve the performance of the ordinary contract. It is a software stored on blockchain, and it is designed for negotiations between parties willing to make some deal. Therefore, smart contract contains the terms of agreement and can make the verification of their fulfilment automatically. 

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So, in general, smart contract has a lot of similarities with the paper one in its functions but the main difference is that it helps to eliminate the intermediary party.

Why was it created?

If we look at the centralized models of business, we will see that third parties are always involved into processes of conducting transactions and executing the conditions pointed in contracts. Usually, third parties are banks or other financial institutions, lawyer companies and government organizations. 

Businessman often depend on these intermediaries, which cannot guarantee the expected performance in every case. Therefore, smart contracts assist with more secure and private business management.

How does this technology work?

Each smart contract has its own unique blockchain address, which is used for finding the contract in the network. While creating a contract, parties do not face any limits – they can make it as complex as they require it to be.

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BTC blockchain was the first to support self-executing contracts, however, ETH provides users with more opportunities, such as allowing developers to create their own smart contracts. Therefore, most companies and businesses utilise ETH blockchain for crypto contracts creation.

Digital contracts are only get executed if the conditions and rules are respected.

What advantages does it bring?

Smart contracts assist in solving a number of problems met by parties making agreements in a traditional way. The main advantage of self-executing contracts is that they are decentralized. As crypto contracts are stored on the distributed ledger, they are distributed, meaning that they are not controlled only by one person. Decentralization brings a bunch of pluses such as:

• Security 

The outcome of smart contract is determined by all network’s partakers – any attempt of fraud will be noticed and marked as invalid. So, a smart contract cannot be changed or broken.

• Direct dealings and transactions without middlemen

Smart contracts enable transparency between two parties making agreements and eliminate dependency on third parties.

• Trust

As digital contracts are automatic and can’t be changed, they raise the level of trust between parties. 

• Keeping records

All information about transactions is kept in the ledger. Moreover, all documents have duplications, and parties can be sure that no data will be lost as it may happen in case of traditional paper contracts.

• Cost efficiency

As there are no intermediary parties involved in the process, smart contracts eliminate the additional fees. 

• Speed

With the elimination of the paperwork, automatization of execution and faster transactions enabled by DLT, the speed of contract processing increases.

What are possible smart contracts uses?

Smart contracts have already entered various industries to improve the processes of work.

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• Banking

It is the first sphere where crypto contracts have started being applied to alter the traditional model of making transactions. Self-executing contracts can be used by banks to comply with AML and KYC policies, as, for this purpose, banks have to verify and identify their clients. In this case, crypto contracts help to make the process cheap, efficient, fast and automatic.

More than that, digital contracts can help with bonds management and improve the loan process making it less complicated. 

• Healthcare

Talking about healthcare, smart contracts allow to directly connect service providers with consumers, reducing the cost.

For instance, when a health service provider and a customer have a digital contract, every time the person gets a medical care, the information will appear in the ledger. Therefore, the customer will know how much to pay for the service, and the doctor will be sure that the payment for his work will be made. 

• Supply Chain

In case of supply chains, smart contracts are used for improving the transportation, delivery industry and tracking the products.

For instance, the traditional shipping process is not efficient and is expensive due to the large amount of paperwork. While using digital contracts, however, each process during the shipping of a product is confirmed automatically. 

• Real Estate

As crypto contracts assist in eliminating the middle parties, they are revolutionizing the real estate industry. The rent of apartments become easier as clients directly pay flat owners without the participation of the real estate agencies. The apartment owners, in their turn, do not have to pay the agencies for advertising. Therefore, the process is brings profits to all participants of the property business.

• IoT

The implementation of crypto contracts can also help the development of IoT sphere. Platforms offering crypto contracts solution for IoT industry provide a possibility for different companies and developers to connect and work on various projects.

After these two parties sign a smart contract, all the information is recorded. So, after the completion of projects, payment is automatically distributed as it is stated in the agreement. This way, digital contracts ensure the high level of coordination in the IoT industry.

Smart contracts have already altered the centralized models of business, establishing trustful and direct communication between the parties. They make the agreements more secure, and all the processes become faster and efficient.


The use of smart contracts and DLT in various industries will be discussed at the Blockchain & Bitcoin Conference Stockholm. Details of the event and registration – on the official website of the event

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