Smart Contracts In A Nutshell

Smart contracts are protocols designed to facilitate, verify, or enforce digital contracts without the need for a credible third party. These contracts work on an “if/when-then” principle and have some similarities to modern escrow services but without a third party involved in guaranteeing the transaction. Instead, it uses blockchain technology to verify the information and increase trust between the transaction participants.



Understanding smart contracts

Smart contracts are useful in any scenario where the presence of a third-party leads to inefficiencies. A classic example is an act of buying a house, requiring a large amount of paperwork, negotiation, communication, marketing, and risk management. Here, many simply opt to utilize the services of a third party – or in this case, a real estate agent.

The real estate agent is responsible for creating trust between the buyer and seller and overseeing the deal until it is done. As a result, they charge a high fee for their services.

Smart contracts have the potential to revolutionize the real estate industry by removing the third party from the process. Every facet of the role an estate agent would typically perform is written into the smart contract itself. 

These contracts work on an “if/when-then” principle and have some similarities to modern escrow services. In other words, both the purchase money and ownership of the house are held in a system and then distributed to the relevant parties at the same time.

How do smart contracts work?

Smart contracts use blockchain technology to verify information and increase trust between the participants in a transaction. Each smart contract features the terms of an agreement written as code that is committed to the blockchain and publicly available.

At some point, an event outlined in the smart contract is triggered. When selling a home, this event might be the house reaching a predetermined target price. Once triggered, the code executes and the transaction is completed. 

It’s important to note that smart contract transactions do not occur in a vacuum. Regulators oversee contract activity on the blockchain to analyze the market while maintaining the privacy of each party.

Benefits of smart contracts

There are several important benefits to incorporating smart contracts into common transactions, including:

  • Autonomy – those affected by the transaction the most have full control over the agreement. There is no need to rely on a third party such as an agent, broker, or lawyer. Autonomy also means that a third party cannot enter a transaction and manipulate it for their own gain.
  • Safetysmart contracts are extremely difficult to hack if written correctly. Since each record is connected to previous and subsequent records on a distributed ledger, altering one record would require altering the entire chain.
  • Speed and accuracy – there is no need to waste time processing paperwork or reconciling data errors that often arise during large and complicated transactions. The code which underpins the smart contract is more exacting and rigorous than the legal-speak that underpins traditional contracts. 

Key takeaways:

  • Smart contracts are digital, self-executing contracts where an agreement is written into lines of code. This negates the need for a third-party intermediary.
  • Smart contracts work on an “if/when-then” principle. Code will only execute on an agreement once certain events have been satisfied.
  • Smart contracts give autonomy to the actors in a transaction, avoiding the potential for manipulation by a self-interested third party. Based on blockchain technology, smart contracts are extremely difficult to compromise and provide a much more efficient way of creating robust agreements.

Main Free Guides:

Connected Case Studies


Ethereum was launched in 2015 with its cryptocurrency, Ether, as an open-source, blockchain-based, decentralized platform software. Smart contracts are enabled, and Distributed Applications (dApps) get built without downtime or third-party disturbance. It also helps developers build and publish applications as it is also a programming language running on a blockchain.

The Graph

The Graph is an ERC20 Utility Token (built on top of Ethereum) to enable consumers to freely query the blockchain through a fully decentralized database kept by indexers, incentivized by the payment of tokens (called GRT). The network is also ministered by curators and delegators that help maintain a high-quality index.


In 2012, co-founders Christian Larsen and Jed McCaleb created Ripple, a technology acting as both a pre-mined cryptocurrency called XRP and a digital payment platform enabling monetary transactions. Where Ripple is the tech company, XRP is the decentralized ledger.


In 2014, Jed McCaleb – which also played a key role in the development of Ripple – created a cryptocurrency to provide fast, reliable, and affordable money transactions. The same cryptocurrency has considerably grown seven years later. It is now one of the most stellar cryptocurrencies to provide a real-time platform that links banks, payment systems, and people. Meet, Stellar!


Monero is one of the cryptocurrencies recognized for its privacy-oriented features. When it initially launched in April 2014, Monero was called BitMonero with the symbol XMR which translates to Esperanto.


In early 2019, a joint project between TRON and BitTorrent Foundation called BitTorrent Token came to fruition. BitTorrent Token launched to tokenize in-demand file-sharing protocol and enhance content delivery and bandwidth accessibility with blockchain technology.


Chainlink is considered the most established decentralized oracle network. As an ecosystem housing several decentralized oracle networks running simultaneously. As a decentralized oracle service built on Ethereum, Chainlink has the power to support the development of blockchain solutions for both traditional businesses and enterprises.


Uniswap is a renowned decentralized crypto exchange created in 2018 and based on the Ethereum blockchain, to provide liquidity to the system. As a cryptocurrency exchange technology that operates on a decentralized basis. The Uniswap protocol inherited its namesake from the business that created it — Uniswap. Through smart contracts, the Uniswap protocol automates transactions between cryptocurrency tokens on the Ethereum blockchain.


In a Blockchain Economy, a good chunk of value is at protocol level. Therefore, you will have a Blockchain Protocol (in this case Steem is the protocol) which has a set of underlying rules. The Steem protocol reaches consensus, and it follows a proof-of-stake (contrary to Bitcoin where there is a proof-of-value mechanism). On top of the Steem protocol, several applications can be freely built. Those applications will be decentralized, as they will be based on a decentralized network in the first place. In the Steem Blockchain context, Steemit is among the largest and most important (Steemit was the first application launched as a use case for the Steem Protocol).

About The Author

Scroll to Top