What is Smart Contract and How Does it Work?

The advent of blockchain technology brought about some inventions though not immediately. Bitcoin for instance has been around for about six years before Ethereum was released in 2015, and that marked the second generation of blockchain. Smart contract was later introduced to handle distributed ledgers on the Ethereum network. Smart contract functions by automation and its programming language is Solidity.

What is smart contract?

Smart contracts are a set of codes that are so programmed such that they self-execute upon meeting the conditions set by the parties involved.

Benefits smart contracts

Smart contracts are beneficial in a number of ways including breeding trust in business, improving performance rate, and so on. Let’s look at some of these benefits one after the other.


What makes the smart contract so special is its autonomous nature. What this means is that the predetermined conditions have been met and it starts executing, it can never be interrupted by any third party. Automation helps organizations who need to automate some areas of their business.


Another benefit that smart contract has to offer is their security. It will be difficult to alter the record because each added record is connected to the previous records and subsequent ones. This implies that to change a record, the hacker will need to change the entire record on the blockchain which is practically impossible.


Smart contract helps in dealing with cases where trust is a major concern since there is no need for a third party. Also because the transaction records are encrypted, there is no need to question if any agent would want to make a change to the information.
Since the data generated by the smart contract can’t be manipulated in any way, it, therefore, ensures that all information is well secured which promotes trust among users.

Fast Performance

The autonomous nature of smart contracts cuts down the time it takes to perform tasks. Unlike the traditional approach where time is spent on processing paperwork and reconciling errors, the smart contract is executed immediately.

Error-free and Accurate

Smart contracts can give you an accurate result provided your codes are correct. It will only work based on how it has been programmed. Since there is less human interaction, you are certain to have error-free results.

Smart Contract Use Cases

A lot of industries have been putting smart contracts to good use. Though it has not reached its maximum potential, it has so far changed the way of normal operations in some of these industries. We have put together how smart contracts can be used in different industries.

Data Management

Organizations need to keep records of their communication and transaction. Most often, departments in these organizations collect and input these data manually using a paper form or into the machine and save them on the company’s saver or cloud. To share the data information across to other departments or management, employees have to send them over the internet or deliver the paperwork in person. The feedback always takes time due to crosschecking and auditing to see if there is any error present. This is where the smart contract becomes useful.
Developers can program smart contracts such that every step regarding data recording is automated. Automatic data processing would mean that there won’t be any need to manually transfer records, thereby saving time and enhancing transparency. In addition, a smart contract can’t be altered which saves the organization auditing cost.

Supply Chain Management

The process of handling goods and services from the time of production to the delivery time is called supply chain management. This process involves recording data at different stages of production. With the traditional system still in place, the data records are susceptible to manipulation since they have to go through multiple stages in the chain. Implementation of blockchain technology and smart contracts reduce the changes in data manipulation and prevent fraud cases.
Smart contracts also help to monitor how the product or service progresses at various stages and to keep track of them using data from sensors. Therefore in the case of items stolen or lost items, they can be located with the use of smart contract.


The purpose of using smart contracts in healthcare is similar to data management and supply chain. Patients’ information is very critical and should not be tampered with, hence the need to ensure that patient’s records are kept safe and secured. With blockchain and smart contracts, hospitals and clinics can encrypt personal health records to ensure that they are securely transferred within and outside the department. Only authorized individuals like doctors and the patients themselves can have access to the private keys which grant them access to the patient’s information.


Insurance is regarded as one of the most used cases of smart contracts. The role of the smart contract here is to facilitate the agreement between the insurance company and the insured person. The agreement contains the company policy which includes all the terms and conditions and as well the type of coverage available to the insured person.
To make accurate decisions, these agreements are programmed into the smart contract. It will also require all necessary documents like driver reports for automotive insurance and health records for health insurance.

Property Ownership

Smart contract makes the transfer of ownership possible. The creation of non-fungible tokens (NFTs) on the blockchain serves as proof of ownership of properties which could be artworks, fashion, real estate, etc. Traders who want to buy or sell these properties can do so with confidence. A smart contract verifies the identity of the concerned parties and automatically registers the property for its new owner.

Escrow Service

Escrow is a contractual agreement in which a neutral third party holds assets or funds received from one party and releases it to the other party upon meeting the given conditions. Escrow service is common among freelancers and in the real estate industry.
The smart contract can be coded such that when a freelancer submits a project, it authenticates and verifies it automatically. Using this approach thereby eliminates the role of a third party and cancels out any question about fraud. Smart contracts will be very beneficial to freelancing websites where escrow service is in high demand.


Some citizens lack trust in their government. The reason is because of poor transparency across various government institutions. A lasting solution will be to implement blockchain’s core values such as decentralization, transparency, and security across the public sectors. The roles of auditors can be substituted with the adoption of smart contracts, doing this will help remove the barriers of mistrust since no one will be able to tamper with the government records.
Smart contracts can also be useful in areas like the voting process during elections and the digital identity of the citizens. Smart contracts generally cut down the cost of governance.


Ayodeji Akomolafe

Ayodeji is passionate about blockchain technology. He can write effortless on blockchain topics such as DeFi, DApp, NFTs, Crypto and Metaverse. Apart from writing long-form articles, he also write on crypto news and press release.

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