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What are Smart Contracts?

What is a Smart Contract:

Smart contracts help you exchange money, property, shares, or anything of value in a transparent, conflict-free way while avoiding the services of a middleman.

What Smart Contracts Used For:

You can use smart contracts for all sorts of situations that range from financial derivatives to insurance premiums, breach contracts, property law, credit enforcement, financial services, legal processes, and crowdfunding agreements.

How Do Smart Contracts Work:

Smart contracts work a lot like vending machines. You are required to drop a required amount of a cryptocurrency into the smart contract, and your escrow, house ownership right, driver's license, or whatever else drops into your account. All the rules and penalties are not only pre-defined by smart contracts but are also enforced by them.


  • Transparency of actions in smart contracts on blockchain in the system, along with the confidentiality of the parties to the contract

  • High speed of execution thanks to the use of mathematical algorithms in blockchain applications instead of bureaucratic mechanisms

  • Automation of smart contracts

  • Takes place almost simultaneously for all parties, across participating computers, once the necessary criteria are satisfied


  • Weak legal regulation of smart contracts work

  • High dependence on programmers and exposure to bugs

  • Currently, no government is regulating smart contracts

  • There is a potential issue if governmental institutions decide to make a legislative framework for smart contracts

  • Smart contracts cannot be performed without programming, it is important to have an experienced coder to make fail-proof smart contracts


While smart contracts may not seem very important right now, they are a product of the intersection between finance and technology, also known as fintech. Finance technology has a lot of useful applications that may be integral in the future.

Written by Anna Li

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