• Bitcoin
  • Ethereum
  • XRP
  • Tether
  • Bitcoin Cash
  • Litecoin

What is Smart Contract, How it’s Work And Why It is Important?

A smart contract comprises computer codes running at top of the blockchain. It contains set of rules under which the parties to that smart contract agree to interact with each other.

Definition of Smart Contract:

A smart contract may be define as an agreement held between two people in the form of computer code. They stored on a public database that’s why are impossible to change. Basically, they run on a blockchain. Transactions done through the smart contract way based on blockchain of which clear meaning is that there is no requirement of third party and it can be done directly. One condition is also applied for smart transaction that the conditions should match from both the parties so there will be no issue happen after the agreement.

How Does a Smart Contract Work?

Well, we have discussed above about what is smart contract in detail. After getting above definition, a question raised in mind that how does a smart contract work? Let us take an example to get in a brief!!!

Imagine, smith wants to buy Kelly’s house. Now, an agreement is formed on the Ethereum blockchain using a smart contract. This smart contract contains the agreement between smith and Kelly.

If we see this agreement in simple words then it will look like this, “when smith pays Kelly 300 ether then smith will get complete ownership of the house without any hassle”.

Once, this smart contract agreement has been final between both smith and Kelly then it cannot be change. It means smith can feel safe to pay Kelly 300 Ether for the house.

If there is no smart contract done between both then smith and Kelly have to pay more amount or fee to the third party. The third party may be broker, house dealer, property dealer, bank, a lawyer, etc.

Don’t you think is it great??? Without paying any extra amount to third party, smith and Kelly get success to deal with each other. There is no more commission of third party or no more delays to wait to for a lawyer and broker to process the agreement! This is just one of many examples of how a smart contract can be used.

Smart contracts are automatically executed after matching the requirements and conditions of agreements. There is no need of third party at all like a bank, a broker or a government.

How is this Possible?

In this case, we should thank to blockchain. Just because of blockchain, technology, we are able to decentralize smart contracts so that they are fair and trustless. By decentralize they are not controlled by one central party like a bank, broker or government etc.

The blockchain is a shared database that is run by many computers not a single and they are also belonging to different people. This is the reason why not a single person or company has control over it.

There are many benefit of smart contracts from which one of them is it is nearly impossible to hack for hackers. First, they have to hack more than half of the nodes if they wanted to attack the blockchain or the smart contracts that run on it. Therefore, smart contracts are very safe to run and handle easily or automatically without interrupting of any third party! Now you know even more about what a smart contact is!

What is Smart Contracts Currently Being Used For?

As, I have mentioned above the example of smith and Kelly, but it is not only the condition in which smart contracts can be used. The possibilities of uses smart contracts have not limit. Smart contacts can be used for any type of transaction — it doesn’t have to be financial.

Smart contracts can be used for financial trades and services, insurance, credit authorization, legal processes and even for crowd funding agreements (ICOs). Let’s discuss further more about the uses of smart contracts and how they will benefit other industries in the future…

Insurance Companies:

There were two insurance companies named as Atlas Insurance and Axa in France, they both tested contracts in the year of 2017. They had prototypes that compensated airline customers if their flights were delayed.

If you haven’t clear yet then let us take an example!!!

Suppose, Kelly is about to fly from NYC to Los Angeles then he sends $5 worth of cryptocurrency to the Axa Insurance smart contract and give his flight number. Axa send $95 to the smart contract. So, there is $100 in the smart contract.

Now, If Kelly’s flight is on time, Axa are sent $100 from the smart contract. But if the plane is late then $100 is sent to Kelly from the smart contract. Everything is automatic.

With the help of smart contracts, Kelly gets success to save lots of time and money. It also means that Kelly does not have to trust that AXA will pay him the agreed amount if his flight is late — he knows that if it is late, the smart contract will instantly send him his compensation ($100).

Health Systems:

Health system has developed more. Now, they will use smart contracts to record and safety transfer data. As we have explained it above by providing many examples in the medical industry by the likes of Encrypgen. This is an application that uses smart contracts to transfer patient data in a secure way, allowing no access from third parties.

With the help of smart contracts, the patients will have full of control on their data. They have authority to sell their data to the researchers with their full desire. If they want then they will get amount and researchers will have to pay them to get their data.


If government want to make voting system fully fair and trustless or much more secure then smart contracts may run on the blockchain. This will make voting system more secure.

There is an Application FollowMyVote uses smart contracts and blockchain technology to protect votes from fraud. When the voting transaction is written to the blockchain then it become impossible to change for anyone. When the voting is over, the smart contract will send a token to an address that represents the winner of the vote.

This way, the voting is always fair, meaning the winner is always correct.

Business Management

Smart contract is one of those key from which Businesses can benefit massively. Instead of paying staff to run payrolls, they can use smart contracts.

Businesses can just set up a smart contract that says WHEN the date is 28.03.18, the Business sends John 2 ETH. This means John will always be paid on time, and he will never be underpaid. The business benefits because it is all automated, saving them lots of time and money!

How is Smart Contracts Created?

If you want to built smart contract then it can built with the help of multiple blockchain platforms including Ethereum and NEO. As Ethereum is the most popular choice for developers, so, you must go for Ethereum’s smart contracts. Smart contracts are developed using Ethereum’s original coding language, called Solidity.

How Smart Contracts will Change the World?

As we have understood from the example mentioned above that there will be no need of middleman in deal with anyone. Remember, Kelly and smith example where they didn’t need any agent like lawyer or any banker.

In other words, smart contracts will remove the role of middleman through which we can save lots of money and time. With the help of smart contracts, we can get rid of facing frauds and fraud people.

Smart contracts can make the world a better place that is free of commission. It can reduce fraud, delays and the overall cost of many things. However, as we further advance technology, we remove the need for certain jobs.

Shailly Kashyap

I am a freelance blockchain writer. Having 4 years of experience in blockchain industry, I have written many articles and blogs on cryptocurrency. My goal is to work with dedication, deliver accurate and transparent information that helps to companies and users to grow.