A Principal Study on Smart Contracts

Smart contracts are coded pieces of intelligence that reside on the blockchain and regulate clauses, understanding or agreement between relevant stakeholders.

Smart contracts foster trusted agreements and transactions to be executed among contrasting, anonymous parties without the need for a central governing body, legal binding or external driving mechanism. They render the transactions transparent, traceable and irreversible.

Smart contracts were first theorized in 1994 by Nick Szabo, an American computer scientist. Nick invented a virtual currency called “Bit Gold” in 1998. This was almost a decade before the invention of Bitcoin.

Nick defined smart contracts as digitized transaction protocols that execute terms of a bond. He wanted to extend the functionality of electronic business methods, such as point of sale to the digital domain.

An overview of how smart contracts work

An overview of how smart contracts work

Smart Contracts are specific protocols that are defined between parties and are executed at the right moment to either validate, streamline or prevent a breach of trust or inappropriate transactions.

Smart Contracts require coding experience skills and is usually taken up by a seasoned software engineer who is well versed with the programming language used. The programmer has the raw data of all the clauses and seamlessly migrates them to machine instructions thereby achieving automation.

Smart contracts share the same technology that many other programming languages use to achieve portability. The governing virtual machine is the backbone through which smart contracts are realized. Whereas the virtual machine is a complex piece of enterprise software, smart contracts can vary in complexity from simple to full-fledged.

In the venture of security token offering (STO), smart contracts have taken giant strides. All the aspects related to buying, selling and trading of security tokens are managed by smart contracts. Consumers are bound by the ‘if’ and ‘else’ conditions, thereby ensuring that there are no missteps.

Smart contracts applied in the industry

The blockchain ecosystem provides smart contracts as a great tool that can effectively leverage users of the internet. There are several use cases for smart contracts and is only limited by human intuition. Many projects have discovered the inherent caliber of smart contracts and are extending them beyond crowdfunding.

Consider a simple case which may come up in future and is related to real estate. A prospective tenant may agree with the owner of the property to transact using cryptocurrencies. This is usually applied to large firms leasing out a working space. Smart contracts can adequately handle the monthly transactions between the two parties.

With governments backing up blockchain technology and encouraging the need to keep sensitive data in public ledgers, another typical application of smart contracts could be in voter turnout. Authorities can analyze this data and draw conclusions on low participation or recognize fraudulent exercise of the franchise.

With the ongoing research on autonomous vehicles, this may not be a futuristic idea. The vehicles are always online and set the ground to leverage the power of decentralization and crypto contracts. From suggesting routes to streamlining insurance claims, the sky is not the limit for smart contracts.

The same analogy can be worked out for airports, logistics and retail. With such large businesses reaching billions of dollars in daily volumes, smart contracts are well placed to make its presence felt. The excellent productivity gain is that smart contracts can work round the clock and does not suffer from human weaknesses or inefficiency.

Some reputed implementations of smart contracts

Some reputed implementations of smart contracts

Smart Contracts were introduced in Bitcoin but in a very fundamental way. Bitcoin introduced smart contracts as a constrained scripting language containing a few hundred snippets. Such a system is prohibitive in the fact that it cannot be extended for complex constructs.

Ethereum is the platform built on the purpose of supporting smart contracts. Ethereum supports a language that users can adapt to design and deploy smart contracts. This language is well stocked and supports numerous programming syntaxes.

The Ethereum Virtual Machine executes the autonomous agent (smart contract) in the method understood by the network.

A few implementations of smart contract that have left an excellent mark in the industry are:

  • Ripple is a framework whose smart contract development was phased out in 2015.
  • Bitcoin provides a basic (Turing incomplete) facility for a smart contract that can work on Bitcoin like escrows, time locks.
  • Ethereum is the most widely worked out and an adopted framework to develop smart contracts headlining an almost Turing complete language.
  • Other frameworks with tangible impact are Namecoin, RootStock, Automated Transactions and EOS.

Advantages and Disadvantages of Smart Contracts

Advantages and disadvantages of smart contracts

Autonomous agents have their own set of hits and misses. The advantages of smart contracts far overpower the disadvantages. However, being a logic-based undertaking requiring sharp, trained eyes, smart contracts need dedicated attention.

The pros of smart contracts are:

  • Autonomous or self-driven: No or minimal need for human intervention.
  • Safety through numbers and integrity: The documents are encrypted on a shared ledger. No scope of corruption or misplacement.
  • Replicated to the entire set of distributed ledger nodes: Documents are replicated across the Blockchain nodes. There is a peace of mind not worrying about getting deleted.
  • Speed: Bureaucracy is avoided by software code to process business cases thus fostering swiftness.
  • Accuracy: paperwork is minimized by adopting digital contracts.

The cons of smart contract are:

  • Inefficient or faulty coding: There is a high probability that the smart contract code could not support exhaustive validation and be faulty. There could be breaks in the contract that would attract violation for big businesses.
  • The issue of taxing and regulating smart contracts: There is no single rule as to how to monitor smart contracts (concerning leniency and strictness). People could get away making large transactions without paying the overhead involved.


Smart Contracts are setting new standards to extend blockchain technology thereby bringing in much scalability and negating the need for human intervention. As discussed in this article, smart contracts are only limited by human knowledge and they require just the problem statement, effective coding and a niche domain.

What is to bear in mind is that the smart contracts are not always the savior of the day and they have their own set of drawbacks. A proper consideration has to be first factored before incorporating smart contracts into the system, failing which there could be severe consequences.


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