What is a Smart Contract?

A smart contract can be explained as a computer code that runs on the blockchain and defines a set of rules for the contracting parties that come together in the deal. As soon as the defined rules in the contract are met, the agreement automatically gets executed. The code in the smart contract is used to facilitate, verify and implement the agreement or transaction. They help you manage money, property or anything that holds value in a most transparent and ideal way. It’s the most manageable kind of a decentralized program with no need for the middleman.


A smart contract is a mechanism that involves digital assets and a pair of contracting parties. The smart contracts work on a certain formula that enables parties to deposit and lock their assets in the smart contract, from where they get automatically distributed among the parties as soon as the conditions of the contract are met.

The best way to understand the operation of a smart contract is to compare it with a conventional paper contract. A legal physical contract requires parties to make incessant rounds to the lawyers, pay them and let an extra amount of their time be consumed. Whereas, smart contracts provide their users with more feasible usage options than a regular paper contract.

Smart contracts ensure quality performance at a minimal cost







Traditional VS Smart Contract

When the contracting parties have a trust deficit, there is a need for a trusted third party to act as an intermediary and verify the financial transactions taking place between them. While with blockchain and smart contract, the need for a trusted middleman is removed from the system, because of the special codes, behaves as a trusted medium which clears and settles the transactions.


If Charlie wants to buy a house from Mark, he needs a trusted partner to verify the deal between the two people. The process of verification may differ from state to state but, no country ever allows anything, be it the registration or purchase of a house, it never happens without the verification from the third party like an agency or an authority. The process of verification and authentication in a conventional set up cannot only be time-consuming but also draw a huge amount of money.


Whereas, in the blockchain, all the authorities and companies work together and define the terms for sale in the smart contract. If Charlie wanted to buy a house from Mark using smart contract, each node on the blockchain would individually be a testament to the transactions taking place between the two parties. The network would ensure that Mark as a seller has received and Charlie as a buyer has paid the due amount.


If the network recognizes he action and makes sure that the conditions have been met, Charlie gets an access to unlock the smart contract under which the rights of the house are secure. The blockchain registers Charlie as the new owner as soon as it verifies that the payment of $100,000 has been made in the name of Mark.

A blockchain ensures transparent action while remaining anonymous or running under a pseudonym. This means that blockchain has an inherent quality of allowing all people on the network, the access to check the authenticity of the ownership rights of the new buyer. These people can verify whether the person has fulfilled all the conditions due for the purchase to become the owner of the house.


The smart lock system is going to make tampering of the property document an impossible process. Owners can easily verify their data and lock documents on the blockchain to keep them secure. The access to the lock will only be granted to authorized people granted by the owner himself and the operation will only be possible with a smart key.

Smart contracts can give a new and safe dimension to your business plan.