Smart Contract


A smart contract is a computer program that can automate the execution of an agreement or contract. The program is self-executing, meaning that once it has completed its execution, the transactions are trackable and irreversible. Smart contracts have become popular due to their ability to automate complex processes and reduce the need for intermediaries. They can execute transactions between two or more parties, without relying on a centralized authority or external enforcement mechanism. This provides a high degree of security, trust, and transparency for all involved parties. (Mohanta, Panda, & Jena, 2018)


Smart contracts enable trusted transactions and agreements among anonymous parties. By leveraging blockchain technology, smart contracts can facilitate transactions that are secure and transparent, without the need for a central authority or legal system. The technology allows disparate parties to transact with each other without requiring them to trust each other implicitly. This is because smart contracts are designed to be tamper-proof, meaning that the code cannot be altered once it has been executed. Additionally, the transactions are trackable, providing an immutable record of the transaction history.


While blockchain technology is mostly associated with Bitcoin, it has expanded far beyond just digital currency. Smart contracts are one of the most promising use cases of blockchain technology. They have the potential to revolutionize various industries, including finance, healthcare, supply chain management, and more. As the technology continues to evolve, it is expected that smart contracts will become an integral part of many organizations' operations.


Uses of Smart Contract

Smart contracts have a wide range of applications due to their ability to execute agreements between parties automatically. One of the most straightforward use cases for smart contracts is facilitating transactions between two parties, such as the exchange of goods or services. For instance, a manufacturer can use smart contracts to set up payments for raw materials, while the supplier can set up shipments. Based on the terms of the agreement between the two parties, funds can be transferred automatically to the supplier upon shipment or delivery. This reduces the need for intermediaries and streamlines the transaction process.


Apart from facilitating transactions, smart contracts can be used in various industries, such as real estate, stock and commodity trading, lending, corporate governance, supply chain management, dispute resolution, and healthcare. In real estate, smart contracts can streamline the process of property transfers, while in finance, they can be used to automate lending and trading processes. In healthcare, smart contracts can help to manage patient data securely, while in the supply chain, they can track the movement of goods from the manufacturer to the end consumer. The versatility of smart contracts makes them a valuable tool for many different industries.


Pros and Cons of Smart Contracts

Smart contracts offer several benefits, such as reducing the need for third parties, increasing efficiency, eliminating the possibility of human error, and ensuring immutability. Since smart contracts are self-executing programs, they streamline contract execution, reducing the time and costs associated with traditional contract management. Moreover, since smart contracts operate on code, there is no room for human error, which is common in manual contract management. Smart contracts are also immutable, meaning that once executed, they cannot be changed, ensuring that all parties abide by the terms of the agreement.


However, smart contracts also have some limitations that should be considered. One of the primary drawbacks of smart contracts is that they are permanent, meaning that they cannot be changed if there are errors or mistakes in the code. This limitation can lead to significant financial losses for the parties involved. Additionally, since smart contracts rely on programming, they are subject to errors or loopholes in the code that can lead to the execution of the contract in bad faith. Therefore, it is crucial to ensure that smart contracts are appropriately designed and tested to avoid any unintended consequences. Finally, smart contracts rely on the programmer to ensure the code addresses the terms of the contract, which can be a significant drawback if the programmer is inexperienced or does not have a deep understanding of the underlying business requirements. (Hewa, Ylianttila, & Liyanage, 2021)


Smart Contract in Blockchain

There are several blockchains that support smart contracts. Ethereum is one of the earliest and most popular blockchains with smart contract capabilities built into its system. Another example is the Bitcoin blockchain, which gained smart contract abilities after its Taproot upgrade, enabling it to communicate with layers that have smart contracts enabled on their blockchains.


In simple terms, smart contracts are applications built on a blockchain that facilitate and automate the execution of an agreement between parties. By using code to enforce the terms of the agreement, smart contracts eliminate the need for intermediaries or third parties to verify or enforce the terms of the agreement. For instance, a smart contract could be used to initiate a fund transfer and automatically verify the transaction with a third party to ensure that the transfer has been made.



Mohanta, B. K., Panda, S. S., & Jena, D. (2018). An overview of smart contract and use cases in blockchain technology. 2018 9th International Conference on Computing, Communication and Networking Technologies (ICCCNT). doi:10.1109/icccnt.2018.8494045

Hewa, T., Ylianttila, M., & Liyanage, M. (2021). Survey on blockchain based smart contracts: Applications, opportunities and challenges. Journal of Network and Computer Applications, 177, 102857. doi:10.1016/j.jnca.2020.102857