| Publish date: 01/21/2018 (Last updated: April 04, 2018 11:19 AM)

What are Smart Contracts?

Smart contracts are self-executing contracts whose terms are directly written into a blockchain’s code.

Once both parties’ terms of agreement are met, a smart contract will automatically execute the outcome of the contract without any further action required either party.

Smart contracts are distributed across the decentralized blockchain network and are therefore viewable by all of the blockchain’s participants.

As is the case with all blockchain transactions, smart contracts are irreversible once the transactions have been executed.

What Are the Advantages of Smart Contracts?

Smart contracts execute exactly as designed. This allows developers and end users to achieve the desired outcome when a given set of criteria is met without fear of any interference or mishap.

Smart contracts allow transactions and agreements to be made between parties without the need for a trusted third party like a government or bank. The self-executing, automated nature of smart contracts ensures that contracts are implemented without the oversight of a legal intermediary.

Smart contracts also keep transacting parties completely anonymous. Without the use of a trusted third party to verify the legitimacy of the transaction, parties can interact directly while still maintaining anonymity.

Smart contracts allow two or more parties to interact from anywhere in the world. Traditional contracts are limited by location. They typically require in person verification and implementation, and therefore their use is constrained to specific scenarios. Because smart contracts are distributed and coded on decentralized blockchains, such limitations do not exist.

Smart Contracts in Action

Smart contracts can be implemented any time an “if / then” agreement is established. If a company wants to pay an employee a bonus based upon sales quotas, they can use a smart contract that says, “Pay employee ‘x’ once he makes ‘y’ dollars in sales.”

If the sales quota is met, he will receive the predetermined amount written in the smart contract. If the quota is not met, the contract does not execute. Smart contracts automate processes and remove the need for additional oversight and data tracking.

Smart Contracts Infographic

What Are Smart Contracts


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