What is Smart Contract?

3 min read

Technologies are radically evolving and some of them can be a little scary. Smart Contract is one of those disruptive technologies in recent years that we are all in awe of.  

What is Smart Contract? The term “smart contract” was first used by computer scientist and law scholar Nick Szabo in 1997, long before the invention of Bitcoin. Nick proposed the use of distributed ledger to store contracts in lieu of physical contracts. So, instead of relying on trust and legal provisions to bind the parties, a blockchain can create a smart contract that is enforced automatically. Lawyers, notaries, and other service providers are no longer in demand.   

How does smart contract work?

So now, you all know what a Blockchain Smart Contract is. The next question is, “How does Smart Contract work?“

To simplify things, let’s use Kickstarter as an example. As we all know, Kickstarter allows inventors to raise funds for their projects. So technically, Kickstarter is an agent (also a third-party) that provides inventors a platform to advertise their ideas or products and raise money.

As opposed to Smart Contract, Kickstarter has a traditional structure for crowdfunding. If a creative project is successfully funded, the project team expects Kickstarter to give them the collected fund. On the contrary, if the project fails to get funded, the supporters expect to get a refund from Kickstarter. The bottom line is, we must trust Kickstarter to handle the money properly.

The mechanism of a smart contract is built without a third party, which means it is self-executing with no middle man. For crowdfunding, a smart contract can be created to hold all the received funds until a certain goal is reached. Supporters and investors transfer their money to a smart contract, which will be automatically passed on to the inventors upon successful funding. If the project fails to meet the goal, the money will automatically flow back to the supporters. In this way, money is stored in a smart contract by way of blockchain technology with no party controlling it.

What platforms support Smart Contract?

According to its official website, Ethereum is a “decentralized platform that runs smart contracts: the application that runs exactly as programmed without any possibility of downtime, censorship, fraud or third-party interference”. It is self-branded as a unique kind of Blockchain Technology for smart contracts at the very beginning.

How do Ethereum Smart Contracts work? Written in Turing Complete Language, Ethereum includes 7 different programming languages, which sets it apart from Bitcoin that is written in a general-purpose language (C++).

Why should we trust Smart Contract?


Once a smart contract is created, it can never be altered again. It is inconceivable to interfere or tamper with the code of conduct, no matter how savvy one is.


The output of the smart contract is validated by everyone. A single party cannot force the Smart Contract to release the funds as other users on the network will spot it and mark it as invalid. Thus, it is simply impossible to tamper with Smart Contracts.

What are some of the uses of Smart Contracts?

Smart contracts can be used in a wide spectrum. For example, banks can use smart contracts to offer the option of automatic payments. Insurance companies can also use it to process insurance claims. Even Barclays uses Ethereum smart contracts to trade derivatives.

Blockchain-based smart contracts will soon replace traditional contracts. So there’s a legitimate reason for you to learn all about Blockchains and Smart Contracts!

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