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Blockchain 101

What are the Smart Contracts on blockchain?

Contract image

While reading previous articles from our Blockchain 101 series you have already come across the term “Smart Contract”. In this article, we will explain what the Smart Contract on blockchain is.

The history of Smart Contracts begins in around the year 1998 where Nick Szabo designed the mechanism for a decentralized currency called “Bit Gold”. It has never been implemented but “Bit Gold” is considered the precursor of the famous Bitcoin architecture.

What is the Smart Contract?

Smart Contract is a sort of computer program executed on the blockchain network. Those (today) simple programs can act as automation tools for governments, healthcare, notaries and other sectors. Combine with blockchain technology those provide tamper-proof, conflict-free and transparent execution with verifiable data.

Think of Smart Contract as a traditional contract which describes fulfillment conditions, penalties, and rules for execution. The difference between traditional contract and Smart Contract is the automatic execution and enforcement of the rules, penalties as well as validation of fulfillment conditions. In the best case scenario, there won’t be a need for any human intervention into the execution.

Smart Contract examples

The simplest example of the Smart Contract car rental. Each car in the rental agency is represented by a unique smart contract. You can check which cars are available and what are the rental prices and terms and conditions. Once you select the car, there are rules inside the contract which will ensure you do provide all the necessary information i.e. drivers license, number of rental days, etc. All you have to do is send payment transaction and wait a few seconds for confirmation. Smart Contract, while executing will validate all the provided details and issue you a confirmation in the form of i.e. token which allows to pick-up the car.

Another example of Smart Contract use is the aftermarket property purchase. There are a few steps you should always take as a precaution to ensure your property is owned by the person who claims the ownership (title deed), if there are any mortgages, approval on the building plan, changes to the original plan and approvals, etc. All those information are scattered and you’d need to visit a couple of the offices to have all those information validated. That’s the traditional way. The Smart Contract way would give you the possibility to check all those information from the comfort of your home or on the go via mobile without the necessity to visit any of the offices or hiring an agent. Blockchain data is stored publicly, therefore, making it available to everyone. So, imagine a situation where a title deed is a Smart Contract which stores all the information about the property, including plans, approvals, ownership details, transfers etc. It could also provide the ability to transfer ownership in exchange for the cryptocurrency. Sound so simple, right?


Despite the fact, there are quite some companies who already experiment with Smart Contracts and blockchains, adoption of the blockchain technology is still quite low apart from payments. We need to wait for the regulations to come in first before we will be able to see blockchains and Smart Contracts coming into the mainstream economy.

If you are interested what are the other uses of blockchain or Smart Contracts, read our previous post “What is the use of blockchain?

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