What is Smart Contract in Simple Words

The blockchain has changed many fields of life, including the financial field. The blockchain is decentralized, it doesn’t need intermediaries. Fees for transactions inside of the blockchain are very low comparing to other systems.
Blockchain has its issues but they are so insignificant comparing to its advantages, that is why the network attracts attention of many developers.

In 1994, somebody called Nick Szabo, a cryptographer, understood, that the blockchain is a perfect network for smart contracts. Smart contracts are self-executing contracts. They are programmed to perform a particular action if some conditions are met. They are computer codes that are stored ad replicated in the system. Smart contracts are constantly supervised by a network of computers that participate in the blockchain running.

Smart Contracts can be used for exchange of funds, property, assets, shares, anything that is valuable. This is the best way to perform all procedures in a conflict-free way, as the conditions are specified in advance, and the action is performed automatically when the conditions are met.

In smart contracts, you can not just define the rules and the penalties if the agreement isn’t met. You enforce all setup obligations automatically. Hence, nobody has to deal further – when the conditions are met, the action is performed, and only like this.

For example, you are renting an apartment. If you get payments in cryptocurrency, you create a receipt that is stored in your virtual contract, or smart contract. The person renting the flat gives you the digital entry key. It shall come to you by an indicated date. If the key isn’t delivered in time, the blockchain releases a refund. If the key is there by the agreed date, the system releases the fee and key to both contract parties. Like this, the system works without faults. If one gives the key, then he / she is sure that he / she will be paid. That doesn’t depend on the other person but on the system and the contract conditions, and this is the way the world may function in future.

You can work with smart contracts in all kinds of situations and fields, such as financial services (which is evident), as well as credit enforcement policy, legal processes, crowdfunding, etc.

Where Smart Contracts Can Be Applied

Voting system would be a perfect application for Smart Contracts, as they would definitely provide more safety and reliability. If one wants to falsify the results, this one would have to decode the ledger-protected votes and change them, and for that, this person would need a huge amount of computing power. No one is able to provide such amount of computing power, hence changing the data would be impossible.


The blockchain is very safe, transparent and moreover, it is absolutely automated. Business operations require lots of sources and efforts, while the blockchain ledger makes it streamline.

Industry, Production

We are progressing to smart robots, and the future will be completely automated. Smartphones, smart cars, smart glasses, why then not smart contracts? They would work perfectly with a smart car, which is self-autonomous. Or what about using smart contracts for detecting whose fault the crash was? Automobile insurance is one more field where smart contracts would be of great help.

Real Estate

If you want to sell or to rent your accommodation, and you cannot handle all processes on your own, you have to pay a middleman: a website or an agency, or a person. With smart contract, you just program the conditions, and the payment comes into your account when some conditions are fulfilled. Every time you get a payment everybody in the network sees it, and every time you save the money that you would pay to the middleman.


Personal health records and medical records can be decoded and stored in the network. Only private key would give access to this data, and you can give the privet key only to trusted people or your doctor.

In medical research, the blockchain can be used as well to ensure that research is conducted with keeping personal data of the patient secret and confidential. Surgeries data can be stored as well in the blockchain and smart contracts will send receipts to insurance companies based on the data. Healthcare management, such its fields as drugs supervision, testing results, regulation, etc. – everywhere smart contracts can be used to keep data confidential and to provide secure and safe environment where all conditions and rules will be observed.

Smart Contracts Advantages

Smart contracts give you autonomy. You are the one who is making the agreement and setting the conditions. You do not need to look for a broker, or a middleman, or a lawyer. The blockchain is the main guarantee.

Trust. Or rather the fact that you don’t have to trust anybody. All is encrypted and protected. All is in the network.

Backup. If bank loses the data about savings account, it is a disaster. In the blockchain though, it is simply impossible. Your data is duplicated so many times that you cannot even count.

Safety. Cryptography keeps your data safe. Hacking is practically impossible.

Speed. Smart contracts use the software code to automate the processes. Hence, you save hours of your precious time.

Savings. No lawyers, no middlemen, no brokers, you just pay the service.

Accuracy. No errors, just what you program.

Smart Contracts Disadvantages

There are disadvantages, though, as well. Nobody has cancelled bugs. It is not clear as well how smart contracts shall be regulated by the government. Or what about taxation? There are many open questions, but mostly just because of the thing that they are too new and we haven’t used to them and haven’t adopted them in the everyday life yet.

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