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Smart ContractsSmart Contracts – Smart way to do business!! From blockchain technology, came the evolution of smart contracts, which converts agreement for obtaining money/service into computer algorithm format for conflict-free exchanges. In layman terms, smart contract is a form of digital agreement for real-world data which is automated. Recent times have seen a wide-spread popularity among companies and even government is looking for potential from this smart way of agreement.

The question arises how does Smart Contract work? The answer lies in that fact that Smart contracts are a subset of the blockchain technology.

Let’s Understand it in Details: How does Smart Contracts really works?

How smart contracts worksSmart Contracts are coded with predefined behaviors which are triggered only by specific conditions. Then it is compiled and shared with other computers in the network. The computers are the nodes while the sharing of contracts is done through blockchain technology. Once the node validates the transaction, it is executed and can not be altered. Then this transaction is merged to form a new block of data. This block is then added to the blockchain making it impossible to be mutilated. Once the contract is part of the blockchain, it is ready to execute its rules and is available on the view-only basis. The parties involved in the contract are anonymous and also gets triggered by events such expiration date is attained or price is hit. This can be used by regulators to understand the market. As far as the computer programme behind these is concerned, these are simple if-then statements but on the outside, they are different when its interaction with the real world comes into the picture. Let’s understand this working with a simple example. A German startup has come up with an innovation, in case of rent agreement, the door automatically opens for the renter once the deposit is paid within due date and produce proof-of-identity. The verification of facts here occurs through blockchain technology. This is the cool example to showcase when smart contracts and merged with the Internet of Things.

This conflict-free and transparent nature of the Smart Contract can make it usable in areas such as insurance premium, property law, financial services, legal services, crowdfunding agreements etc.

…blockchains enable us to have smart contracts. This code could be programmed to create contracts or execute financial transactions once a certain set of criteria has been achieved… – Forbes

Pros and Cons of the smart innovation i.e. Smart Contracts


  • It eliminates the need for middleware such as brokers, lawyers etc and hence reducing human intervention leading to manipulation

  • Since blockchain solely relies on proof-of-work concept, which is the technology behind smart contracts, hence it is surely trustworthy

  • Your data is backed up as it keeps duplicating itself

  • It is highly secure due to cryptography

  • Saves time and speeds up the whole process

  • Not only it is cheaper but it’s automated, keep it conflict-free

  • Since it is decentralized, keep the client’s information private and away from manipulation


  • Bug of any kind in the codes can really mess up the whole system

  • Security threats are still a concern

  • Government regulations are yet not defined

Way forward:

Once implemented in a full-fledged way, it can definitely bring in the high magnitude of transformation as far as doing business is concerned. Human intervention would reduce, making it a more reliable way of entering into a contract. Even though it has both sides, of the coin, of being good as well as bad, yet can bring in huge transformations. In the near future, one would be entering into a contract for renting a flat in a digital automated way or insurance providers would use public ledgers for data of their customers are some of the few transformations which smart contract promises. Though it is in early stages, it surely has potential. Bitcoins, blockchain, and smart contracts prove just one thing, we are in the future!!

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