Best Beginners Guide: Blockchain Smart Contract 101

Blockchain Smart Contract
The invention of blockchain technology has done wonders for the whole economy. Businesses have been using this technology in the form of blockchain smart contracts. And this has completely changed how we currently operate our businesses, but for the better. This might make you wonder, how did it do it?
Smart contracts automate many business processes. This saves up much time by speeding things up. And unlike the traditional arrangements, you won’t have to rely on any middlemen to do your deed. Using this type of contract, you can transfer or exchange shares, money, property, or anything of value in a conflict-free and transparent manner.

This article will give you a brief description of a blockchain smart contract and how it works. I will also talk about its advantages, flaws, and what the future holds for this technology. If you have decided to jump into the crypto world, learning these will surely come in handy. So, without further ado, let’s begin!

What Is A Blockchain Smart Contract?

A blockchain smart contract is a computer code containing a set of rules that can be executed (partially or fully) based on the user-defined independent inputs and without the need for any human intervention.

The idea of smart contracts was first suggested in the ’90s. In 1994, Nick Szabo, a cryptographer, and legal scholar, first came up with the “Smart Contract” notion. However, this didn’t make waves back then because there was no distributed ledger technology available to support it during that time.

But after the invention of blockchain technology in 2008, everything changed. This technology paved the path to developing a smart contract code that is now used to register the terms and conditions of the contract into the blockchain.

Fundamentally, smart contracts work just like usual contracts. It will let you exchange money, property, share, or anything of value transparently and securely without the need of any middleman to do your deed.

In a smart contract, the money or asset gets converted into a program and stored as a part of distributed ledger technology such as blockchain. The program automatically runs the code and assesses events based on the independent user-defined inputs and the set of conditions baked into the code. Depending on that, it takes actions such as transferring the stored asset back to its owner or handing it off to the other participating parties.

However, despite its name, this type of contract is not legally binding. Its primary function automatically performs various processes, tasks, and transactions coded into the program in response to a predetermined set of events.

But suppose a smart contract meets all of the requirements for forming a legal agreement (offer, acceptance, an intention to create legal relations, valid considerations, and certainty). In that case, it can be a legal contract, like how a binding contract can be completed electronically using online applications.

How Do Blockchain Smart Contracts Work?

Blockchain Benefits

A smart contract program contains a set of simple “if/when [Condition] then [Action]” statements. Once deployed on a blockchain, it will keep tracking event updates from “Oracles.” When it receives a certain predetermined combination of events, it will execute necessary action accordingly.

As you already know, a smart contract is just a computer code on a blockchain containing specific business logic. The code contains simple “if/when [Condition] then [Action]” statements. And after achieving a predetermined condition, a network of computers executes the actions accordingly.

A smart contract starts with the participants describing their requirements and their desired behavior regarding various circumstances.

Parties have to set up the terms, determine how they want to represent their data and transactions on the blockchain, agree on the conditions that govern those transactions, identify all the potential exceptions, and establish a framework to resolve disputes.

Next, the developers will start their work to write the program in a smart contract writing platform. They will develop logic and test it to ensure it works just as their client expects. After completing their work, they will transfer the code to another team of experts (either internal or third-party experts) to vet the smart contract’s security.

When everything checks out, the code will be deployed on a blockchain and configured to listen to event updates from cryptographically secured streaming data sources known as “oracle.” When the smart contract receives a predetermined combination of events, it will execute actions accordingly.

The Advantages Of Blockchain Smart Contracts

Smart contracts offer several advantages over traditional contracts. And most of them originate from how blockchain works. Down here, I am going to discuss the benefits of smart contracts briefly. Just have a look at them!


For starters, a blockchain smart contract offers you complete autonomy. Here, there is no need for you to rely on a lawyer, broker, or other third-party individuals to confirm the agreement. And your blockchain smart contract will execute actions automatically and without any human interference.

Moreover, this type of contract completely removes any third-party involvement in managing transactions between businesses. And this knocks out the possibility of manipulation.


One of the best things a smart contract offers is that it automates many business processes. And this can save you many resources and eliminate many operational expenses.

Also, as it removes any intermediary involvement, a smart contract is much more cost-efficient than a traditional one. For example, you will need to pay a notary to witness your transaction in a conventional business contract. But you won’t have to do that in a smart contract as the network handles everything.

Speed, Efficiency, And Accuracy

As a blockchain smart contract is an entirely digital and automated process, there is no paperwork involved here. So, you won’t have to manually fill and process a heap of forms to initiate actions upon fulfilling a specific condition. The contract will immediately do it for you, thereby speeding up your business processes.

Also, because it is an automatic process, it removes the possibility of human error from the equation.


Smart contracts offer unparalleled safety to your transactions. Here, all your transaction records are encrypted. And this makes them almost unhackable.

Also, each record on a blockchain smart contract is connected to the previous and subsequent records. And for hackers to change even a single record, they would have to alter the entire block, which is almost impossible. So, you can rest assured, your data will remain safe.


Smart contracts are immutable. Once deployed on a blockchain, there is no way to alter the contract. Here, your data is encrypted on a shared ledger. So, this makes it virtually impossible for someone to lose information.

Also, as the network handles all the processes, there is no way someone can alter the contract for their benefit.

Common Issues With Blockchain Smart Contracts

Smart contracts make use of the blockchain benefits. But that doesn’t make it perfect. There are several issues and challenges you need to consider before rolling out a smart contract. These include:


People used to think blockchain technology is unhackable. In a blockchain-based smart contract, all the information, including the security loopholes and bugs, is visible to all users on that block. And this raises some serious security concerns.

And hackers have been able to use the vulnerabilities in smart contract security to their advantage. For example, in the early days of Ethereum, hackers could drain 50 million dollars worth of cryptocurrency from the DAO.


For smart contracts to execute actions, the oracles need to generate events precisely. And for that, the code has to be flawless to ensure its security. Otherwise, hackers can use the vulnerability to fake events to trick smart contracts into executing.

For more specific events, such as shipment received or payment authorized, doing this is pretty straightforward. But for complex scenarios, this task can be pretty challenging.


One of the advantages of smart contracts is that they can execute actions immediately that span multiple parties, regardless of whether they are in with the intention and understanding of everyone involved.

This speeds up the business processes, but it also has some consequences. Smart contracts are immutable. Once deployed on a blockchain, you can’t change any information regarding this blockchain smart contract. As a result, if things spiral out of control, there is no way to stop them.


As you already know, smart contracts are almost impossible to change. And most of the time, this is considered a security advantage.

But this advantage also becomes a problem when all the involved parties want to make changes to their smart contract agreement or add new conditions or rules without forming a new contract.

The Future Of Blockchain Smart Contract

The future of smart contracts is very bright. It has the potential to change many industries. For starters, it will affect the law industry. Lawyers will shift from their traditional contract formation practice to producing customizable blockchain smart contract templates.

Additionally, as the entire blockchain smart contract process is automatic, industries such as banks, credit card companies, merchant acquirers, and accountants can use it for real-time risk management and auditing.

This type of contract also can automate many processes that run on edge computing devices and IoT (Internet of Things). For instance, when your electricity bill reaches your set threshold, a smart contract may turn off all the power-hungry devices in your home.

Or, in a supply chain scenario, it may unlock funds after the IoT sensors ensure all the contents inside a cargo container have received their destination in perfect condition. With smart contracts, the potential application is genuinely endless.


Blockchain Smart contract aims to bring fundamental improvements to our lives and businesses. With this, all the processes are automated. Any transactions you make are transparent, conflict-free, traceable. It can affect almost every aspect of our lives, but for the better.

Hopefully, through this guide to blockchain smart contracts, I was of some help to you. Have a nice day. And thanks for stopping by!

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