What is a Smart Contract?

What is a Smart Contract?

What is a Smart Contract and how does it work?

Smart Contracts were first introduced in the 1990s under Nick Szabo’s initial concept and later applied to cryptocurrencies and blockchain technology. By writing code to identify agreements between people similar to real-world contracts but instead it is built into a digital format that is convenient, safe, transparent, and verifiable without any intermediaries.

Smart Contracts became more popular in the world of cryptocurrency in 2015 when users could create their own smart contract on the Ethereum blockchain network, establishing different implementations, including decentralized applications (dApps) or tokens.

Cryptocurrency nowadays is not only limited to being unique as a Store of Value or to provide convenience when transferring value but it can also be used in integration with smart contracts. Let's take a closer look together at what a smart contract is.

How do Smart Contracts work?

Smart contracts are much like traditional contracts between parties where copies are stored within the blockchain. In comparison to the normal contract, having a lawyer or intermediary drafting the contract helps to prevent fraud, as both parties have signed in acknowledgment to protect the rights of each other.

For smart contracts, each party is required to meet the conditions that are recorded, wherein the system will then approve the reward specified in accordance with the contract. Smart contracts can be drafted with code or programming languages ​​on different blockchain networks, such as Solidity on Ethereum, Haskell on Cardano, or Rust on Polkadot.

In terms of functionality, smart contracts can simultaneously function with both efficiency and stability, but contract builders need to carefully design the smart contract’s structures to prevent the following problems or bugs.

Pros of Smart Contracts

Smart Contracts are contracts that are stored digitally and can work with convenience, speed, accuracy, and efficiency because its system functions automatically when parties meet the specified conditions, wherein the system will continue to function immediately as it has been set.

In terms of safety, smart contracts are considered to be reliable, secure, and transparent, which are essentially the pros of blockchain technology. Users can always access information and verify contracts which can help prevent fraud because a copy of the contract is stored on the blockchain that cannot modify the contract at all.

Moreover, smart contracts are programs that run automatically, whilst also being customizable to fit usages in different applications. As a result, the contracting party does not need an intermediary making it cost less and reducing the chance of human error as well.


Smart Contracts are digital contracts that can be executed automatically when certain conditions are met. When implementing smart contracts with blockchain technology, it creates applications on the blockchain or dApps (Decentralized Application), DeFi (Decentralized Finance), NFTs (Non-fungible Tokens), and many more blockchain implementations.


IBM, Investopedia, Finematics, Ethereum


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