Smart Contract

What Is A Smart Contract?

A smart contract, at its core, is a program that is stored on a blockchain, which runs when predetermined conditions are met. A smart contract on a blockchain is used to automate the execution of an agreement between two or more parties. The goal is to provide certainty to participants regarding the outcome. All this is done without the intervention of an intermediary or any time loss. Additionally, they can automate workflow, which triggers the following action when specific conditions are met.

How a Smart Contract Works

A smart contract follows a simple “if/when…then…” logic that is written into code and stored on the blockchain. A network of computers will execute the actions when preset conditions are met and verified. These actions can include releasing funds to defined parties, sending a notification, or issuing a ticket. Once a transaction takes place, the blockchain will be updated. The transaction cannot be reversed, and only parties with permission can view the results. This immutability feature explains why high-value dApps, especially in DeFi, must thoroughly audit their code before deploying it in the mainnet for user fund security.

Within a smart contract, there is no limit to the stipulations that can be established. The only limit is as many as it takes so that the participants feel the task will be completed to their satisfaction. To set the terms, parties will determine how the transactions and their data will be represented on the blockchain. They must also agree on the “if, when…then…” rules that govern the transactions. Additionally, they will explore all possible exceptions and define a framework for how disputes can be resolved.

An individual developer usually programs a smart contract. However, as the space has evolved, more organizations are increasingly providing templates, web interfaces, and other online tools that simplify how smart contracts are structured.

Benefits of Using Smart Contracts

Speed, accuracy, and efficiency

A smart contract is executed immediately when all set conditions are met. Since a smart contract is digital and automated, no physical paperwork needs to be processed, and no time is spent reconciling errors, which often result when filling out documents manually.

Trust and Transparency

Since no third parties are involved, and the records of transactions are encrypted and shared amongst participants, there is no need to doubt that the information presented is accurate.


The transaction record of each smart contract is secured on the blockchain, which is almost impossible to hack. Additionally, each record is chronologically connected to all other records, which would give hackers a hard time altering the entire chain to change one record.

Cost Savings

With smart contracts, there is no need for intermediaries in the transactions. Most intermediaries come with a time cost and monetary cost. These costs are eliminated immediately after a transaction is secured using a smart contract.

Limitations of Smart Contracts

Since smart contracts cannot send an HTTP query, they cannot acquire information about a “real-world” event. Another limitation is that using external data to execute a smart contract could jeopardize consensus, which is crucial for security and centralization within the blockchain ecosystem.

Top 5 Smart Contract Platforms


Ethereum is the first ever smart contract blockchain and has been the most used smart contract ever since. Founded by Vitalik Buterin, this smart contract was launched in 2015 and now facilitates the deployment of applications ranging from ICOs to smart-contract-based insurance. The clear advantages of the Ethereum smart contract blockchain are standardization, security, and support.


Another smart contract blockchain is Polkadot. Created by co-founder of Ethereum and Solidity creator Gavin woods. Polkadot smart contract platform is more of a blockchain ecosystem where various platforms are connected to each other rather than a blockchain in the traditional sense.

Hyperledger Fabric

Hyperledger is also one of the Top 5 smart contract blockchains. Founded by Linux Foundation in 2015, with thirty co-founding corporate members, including industry giants like J.P. Morgan, IBM, Intel, Cisco, and others, Hyperledger Fabric is a permissioned blockchain, implying that authentication is required and participants’ identities are known. Hyperledger Fabric was initially built for enterprise use with trust, confidentiality, and security being central to its vision. The distinctive feature of this smart contract blockchain is that it has a modular architecture, so organizations can develop solutions for a wide array of industrial use cases. 


Tezos is a smart contract platform founded by Arthur Breitman in 2017 with the idea of creating a blockchain that would solve first-generation blockchain issues, such as protocol forks. One typical feature about this smart contract Tezos is that it uses the Proof of Stake mechanism instead of Proof of Work to achieve a distributed consensus. 


Stellar ledger, launched in 2014 by one of Ripple founders Jed McCaleb, is a suitable smart contract platform only for primary smart contract use cases such as ICOs or simple escrow contracts. Stellar smart contracts do not have their own specific smart contract language like other smart contracts. Instead, contracts can be written on the smart contract blockchain using any of the most popular programming languages, making it usable for most developers.

Josh Fernandez

Josh Fernandez

20-something Non-giver of ETH.

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