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Smart Contracts on Blockchain – A Beginner’s Guide

Last Updated on March 1, 2024 by Ameer Hamza

In the past couple of decades, the world has seen the emergence of various smart gadgets. More of these ‘ smart ‘ things are popping up around us. From smartphones that now define our daily lives to smart watches. Any piece of technology that allows for more automation through innovation is likely to be called smart. However, the ‘smart’ tag is no longer restricted to technological gadgets.

Thanks to blockchain technology, many unanticipated possibilities for technological advancement have been unlocked. One of them is the advent of concepts like ‘smart contracts‘. The idea of smart contracts offers a lot of potential for the future of human interaction.

Here are some of the basic things you need to know about smart contracts:

What are smart contracts?

Like traditional contracts, smart contracts are instruments designed to facilitate agreement, with a little difference. Smart contracts are digital contracts stored on the blockchain that automatically execute when some predetermined terms and conditions are fulfilled. Thus, a smart contract is a self-executing contract with its terms of agreement written into lines of code on the blockchain. You can think of smart contracts more as computer programs than actual contracts.

How do smart contracts work?

Smart contracts work on an ‘if…then’ basis. To illustrate, consider how regular contracts work. For example, in a simple contract for the sale of goods, the contract is executed when the seller delivers the goods and the buyer pays for them.

Similar principles would govern a smart contract for the sale of goods. However, this time, the principles are in the form of lines of code. Such a smart contract would be programmed on the basis that if the seller delivers a stipulated quantity of goods, then a predetermined amount from the buyer would automatically be paid to the seller.

The ‘if’ aspect of the transaction is the condition that must be met, while the ‘then’ aspect is the action that is triggered once the condition is met.

Essentially, with smart contracts, a network of computers executes certain actions upon the satisfaction of predetermined conditions. The action to be executed could range from releasing funds to transferring ownership of an NFT. It is worthy of note that parties seeking to enter a smart contract must agree on some terms. The terms include the required conditions that need to be completed, actions to be triggered upon meeting the requirements, exceptions to the rules, representation of the transaction on the blockchain, and the dispute resolution framework.

Advantages of smart contracts

Smart contracts have several benefits that regular contracts do not possess. First, they enable trustless transactions. Therefore, strangers can easily transact using smart contracts since the terms of the agreement are controlled and executed by computer programs. As a result, a party to a smart contract would not have to fear manipulation by another party. Furthermore, smart contracts remove the need for third parties and intermediaries, thereby reducing cost and time.

Smart contracts are also much faster than regular contracts since they are automated. The program can execute these contracts in a speedy manner without wasting time on filing or processing physical documents.


Smart contracts are indeed a welcome innovation that can dramatically alter the way individuals and businesses conduct trade. Upon mass adoption, smart contracts could bring about major changes in financial services, healthcare, and global trade.

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