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What Is A Smart Contract? Complete Guide

Have you are ever asked yourself, “What is a smart contract?” If yes, then you have come to the right place as we show a complete guide on smart contracts.

In any industry, automation is a must as businesses now seek to maximize profits while keeping expenses as low as possible. Another reason companies want automation is to eliminate human error and make the process as seamless as possible.

Clearly, there are many technologies that allow companies to do just that. Blockchain technology is one of the technologies that offers automation as one of the main features. Bridge Smart Contract Development Services are used to achieve automation. They are at the center of automation.

To learn more about it, let’s learn the definition of smart contact.

What is a Smart Contract?
A smart contract is a digital code that is used to exchange assets, including stocks, money or property, without the need for intermediaries.

In technical terms, it is an automated or self-executing contract that contains the agreement between two parties embedded in code. The smart contract is distributed, decentralized and transparent as it runs on blockchain technology.

The lack of intermediaries makes it an amazing concept as it can work automatically. The best comparison to this in the real world would be documents provided by lawyers.

The ability of smart contracts to incorporate the rules, both positive and negative, is very useful in almost all environments.


The Path to the Smart Contract Concept
The idea of ​smart contract is not new. In fact, the smart contract idea was first proposed by Nick Szabo two decades ago.

According to him, smart contracts are “a set of promises that are specified in digital form”.

With his work, the concept of smart contracts is established where he intended to take the concept to improve highly evolved contract law practices for Internet users. E-commerce can use the design and implement it.

The concept evolved over the years, but its true implementation was first seen when blockchain was born. When Bitcoin was released, it did come with support for smart contracts, but it only allowed simple smart contracts to be created and executed. Ethereum was what cemented the use of smart contracts in real-world use cases.

Vitalik Buterin is the founder of Ethereum. This brings us to a very interesting question of who invented smart contracts.

Who Invented Smart Contracts?
Nick Szabo invented the concept of smart contracts. His work surrounded him and cryptography. He is an American computer scientist.

In 1998, he worked a Bit Gold, a cryptocurrency. Bit Gold defined smart contracts as a computerized transaction protocol that can be defined by a contract for execution purposes.

Many mistake Vitalk Buterin as the founder of the concept of smart contracts, but that is not true.

But it did introduce an optimal way to use smart contracts in blockchain technology.

What is a Smart Contract? Blockchain Smart Contract
Now that we know the origin of the smart contract, it is time to discuss blockchain-based smart contracts.

Satoshi Nakamoto in 2008 launched the first cryptocurrency, bitcoin. In essence, he used the innovative blockchain technology.

The Bitcoin protocol can only be used to create simple smart contracts. But, there were many teams around the world that worked on the technology and introduced smart contracts to Bitcoin. One of those teams comes from Particl.io , an e-commerce platform that uses blockchain at its core. They enabled a smart contract in Bitcoin that handles funds stored in trustless escrow.

Another group also managed to get smart contracts to work efficiently on the bitcoin network. They released a FASTKITTN framework that solved the problem of complex smart contract management in bitcoin.

It also resolved the cost associated with running smart contracts on the bitcoin network. They discussed the entire process of doing this in their research article, Cross chain bridge development Practical Smart Contacts on Bitcoin .

To solve the problems, they used trusted computing environments (TEE). Furthermore, there they managed to run the smart contract off-chain, resulting in an efficient way to run smart contracts in complete safety.

Ethereum Smart Contract
Ethereum changed the way smart contracts worked in a blockchain environment. Ethereum are designed with smart contracts in a mind. And that is why smart contracts are efficient in the ethereum ecosystem.

Now, ethereum is the number one choice for creating smart contracts.

How Smart Contracts Work?

Vitalik Buterin at a DC Blockchain Summit described smart contracts as a way to transfer assets or currency in a program. He also added that the program executes the code based on the conditions defined in it. It does this automatically and checks the information based on the information it gets.

The smart contract is executed when the condition is met.

If the condition is not met, the smart contract will be executed based on the provided condition.

One more important thing you mentioned is that a decentralized registry makes copies of the smart document or contract to establish immutability and security.

What you described might be too technical for someone new to the concept. That is why we will see an example below.

Smart Contract Example
The real estate sector is embracing blockchain. If in the distant future you decide to buy real estate using a blockchain-powered platform, then you can see smart contracts in action.

There are many parameters that must be taken into account during a real estate transaction. For example, you must set loan amounts, payment terms, and other unique conditions.

To activate the smart contract, you need to sign the smart contract and get it up and running.

For example, you decide to pay 20% in advance of the value of the real estate property. After that, you decide to pay the rest of the value of the property in installments and other conditions that you may have.

The seller creates a smart contract based on the conditions discussed. The smart contract goes live once you both decide that everything is documented correctly.

Over time, you will pay the installments and this will be recorded by the smart contract.

Ownership transfers to you once all payment is transferred to the seller. Everything is done automatically without the intervention of intermediaries or parties.

Compared to a real estate deal done through a traditional method, you will be able to save time and effort by completing the entire deal.

Both the buyer and the seller save money as there are no middlemen.

Additionally, the smart contract will notify all associated parties once an event occurs in the smart contract, including banks, buyers, sellers, and the insurer.

A Technical Example of a Smart Contract
After reading all this, you must be excited about the possibilities associated with smart contracts. Furthermore, to better understand what smart contracts can do and achieve, Build a cross chain bridge let’s take a look at the smart contract powered by ethereum.

Azure has provided a nice collection of samples on their GitHub page . Since we discussed transfer of assets or transfer of ownership earlier, let’s take a look at your asset transfer example. You can find it here .

To ensure proper handling of high-quality assets, it is important to include two more players besides the buyer and seller: Appraiser and Inspector. The inspector is responsible for inspecting the assets before the buyer (Buyer) makes a purchase.

The appraiser is on the seller’s side. It makes assets considerable for buyers. It also makes it easier for the seller to sell.


  • Thanks dude!
  • Would like to add my 2 cents and a shorter version of my understanding. So basically smart contracts are self written code which execute on themselves when the predetermined actions are met. They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary's involvement or time loss. The smart contracts are mainly run on the Ethereum blockchain 
  • In short, a smart contract is a digital contract that is stored on the blockchain. It is a self-executing contract that can be used to automate the exchange of money, property, or anything of value. Smart contracts can be used to create trustless transactions between two parties. Thanks for this!
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