What Is A Smart Contract In Blockchain And How Does It Work?

In the current day, smart contracts are in use in the cryptocurrency space due to trading purposes. Many big institutions are embracing smart contracts which can help to improve scalability at affordable prices, that’s the use of smart contracts does not apply to cryptocurrencies only. Smart contracts are the most important aspect of numerous ecosystems.

The blockchain is the technology behind distributed ledgers which enables data to be held publicly across various servers, for a transaction to be validated it depends on these databases. Smart contracts are enticing due to the elimination of the tasks of administration. Based on the specified terms of the contract, smart contracts are automatic and self-explanatory.    

What Are Smart Contracts?

To have a full understanding of the above topic, we will be making emphases of what smart contract is all about, examples of smart contracts, the features of smart contracts, and how smart contracts work in blockchain.

Smart contracts are programs that are developed to control, form, and provide information on the asset owner, operating on the Ethereum blockchain to confirm and perform autonomously transactions. For instance, when two individuals accept in swapping cryptocurrencies, the transaction will be transferred to the blockchain ledger through the bound of protocol on the smart contract.

Examples Of Smart Contracts

Outside cryptocurrency trading, smart contracts can be used in other fields such as; internet of Things, financial services, etc. Smart contracts are very useful and practical in different aspects of life.

  • Copyright Content: Content owners should be ought to be given the royalties that they deserved, since several individuals have contributed to the creation of a piece, it will be difficult to know the true content owner. Well with the help of smart contracts, it will be easy to know who is responsible for the creation of a particular content.
  • IoT (Internet Of A Thing): In the household, it is important to add internet functions to objects that use the Internet for everyday activities. Users can implement distributed and reliable access control for IOT systems with the help of smart contracts.
  • Employment Contracts: The completion of a contract can be made very simple and easy through the help of smart contracts. Smart contracts can be used to easily record employee information which is related to human resources such as; salaries, career duties, etc. The relationship of cooperation between employers and workers can be strengthened through smart contracts as it enhances transparency and inflexibility. Also, with the help of smart contracts, an agreement policy can be recorded between parties. Before that can be done, the smart contract is automated with paper copies either partially or completely.

Features Of Smart Contracts

  • Accuracy: The tendency of error to be made by humans can be drastically reduced because it is automated.  
  • Security: One of the primary purposes for the creation of smart contracts is to enhance an efficient and safe transaction. Any details stored in the blockchain cannot be changed or altered even if an individual should go against any of the agreements, the agreement will remain the same.
  • Autonomy: The agreements can be fully controlled by an individual. It doesn’t support the involvement of any intermediary, it is a self-guarantee program.
  • Low Cost: Smart contract reduces the high cost of transactions. This was made easy because of the agreement policy and the removal of a third party when carrying out transactions.

How Do Smart Contracts Works In Blockchain?

Before understanding the working mechanism of smart contracts, it is essential to know what it is composed of. Below we will be elaborating on the components of smart contracts.

Identify the subject of the contract. The subject needs to fit around the ecosystem of smart contracts. 

The agreed policy needed to be well-detailed. that’s to be precise with the terms. Let’s consider Ethereum, it uses serpent and solidity, so expected language based on agreements should make use of mathematics terms.

The individuals should give their approval before proceeding with the proposed terms and conditions, and this can be done through signature.

You can go into blockchain-based smart contracts if the required agreements are met. In the blockchain space, before the terms are practicalized, the agreements should be put into negotiation.

For an action to automatically begins on the blockchain by the smart contract, there must be an agreed policy between the users. Explaining further, when a seller intends to sell a particular coin ($ETH for example), the smart contract will be overlooking the transfer till it is sent to the other party. After the transaction is executed, the funds will be sent out, and there will be no trace of alteration. There is a database in the blockchain where all the details about the transaction will be kept.


It is difficult to contradict the importance of smart contracts to our everyday life activities. Smart contracts appear to be an amazing substitute for conventional agreements, providing an improved standard of service. If they are successful in getting a position, they will control how contracts and other agreements will change forever. The way people conduct business will be changed.

The public finds smart contracts interesting because of less cost of transactions, reduced risk of fraudulent activities, and reduce delay of transaction rate. One of the most interesting things about smart contracts is the elimination of an intermediary during transactions.     

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