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Smart contracts are a form of agreement between the two parties in the blockchain network. These contracts are automated programs that store the data involved in the agreement and document the events linked to the transaction. The major benefit of such automated agreements is the effective and streamlined execution of the crypto-related arrangement. The locked treaties are in the form of codes that are irrevocable in any case. The best part about smart contracts is that no third party is required to overlook the protocol between the recipient and the contract creator itself. This conserves time, and people can focus on their tasks with a light head.

Another term that is usually followed by smart contracts is the executed contracts. To define it in simple words, executed contracts require a signature from all the participants involved to complete the entire undertaking. Every person or group who signed on the contract is now legally bound to follow and accept all the rules and regulations of the agreement and cannot move an inch forward from the drawn line. Thus, the operation filters the frauds of the system hence, cleaning the dirt of the whole operation.

Smart contracts save everyone plenty of time and commotion of an intermediary, which is commonly a part of the execution of almost every physical, legal contract. Banks are one of the regular mediators in transferring cash between either two individuals or two businesses. But imagine signing a contract for cash transfer without the requirement of an emissary or supervisor. It is cost-effective and exactly what smart contracts aim to do. All you and the other party have to do is agree on some terms and conclude the agreement on your own.

This article will guide you by taking you on a trip of smart contracts’ operation and execution in the blockchain industry. If you give it a full read, you will find out that smart contracts are more than necessary when trying to survive in the domain of the crypto market.

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History of Smart Contracts

You might be surprised to know that the idea of smart contracts dates way back before the regulation of cryptocurrencies. In the 1990s, a cryptographer by the name of Nick Szabo came up with the concept of smart contracts. The major implementation and adoption of the system were observed in 2014 when ETH blockchain started acquiring the idea.

Szabo was a digital currency idealist back then and had an imagination of launching Bit Gold as the first cryptocurrency ever. Although the world never saw the actual regulation of Bit Gold, Szabo’s smart contract’s concept made experts feel its potential.

Smart contracts, due to their operating fashion, were compared with vendors. The concept of a vendor is providing the customer with the desired item by taking money. And, this whole process is concluded without the physical need of a human being to operate the vendor. Smart contracts act on the same principle. The only thing different about smart contracts is that they offer much more flexibility to the people involved.

Smart contracts were not so fancy and versatile at the dawn of their practical application. They were run on the simple “if-then” codes that any basic coder could implement. Over the years, developers with their advanced knowledge decided to upgrade the field of smart contracts. They made smart contracts more accessible and easy to use. Strong programming languages and codes have strengthened the wall around smart contracts. In conclusion, smart contrast has evolved significantly, and that has made blockchain networks a secure space. There are some updates where a form of the coded encryptions is legible for humans as the original language used for smart contracts is quite complicated to decode.

When you decide to tie your business relations with another firm, both of you will have to come to terms with each other. To make sure that either of you does not abuse your set conditions in the market, a legal contract is signed as a treaty and proof whenever an illegal act is suspected. The radius of the blockchain network also carries out such contractual concepts with slight differences.

The realm of cryptocurrencies has kept the whole world on its toes for about five years now. From starting as a silly investment opportunity to a billion-dollar market, it has been a roller coaster ride for all the crypto enthusiasts and investors. But, as an industry grows from a seed to a tree, the scams and risks also increase with it. In such industries, the significant need for record supervision and legitimate contract systems are vital to ensure a safe and easy transaction protocol. Smart contracts are just the automated operations for budding industries like cryptocurrencies.

It is an important aspect to remember about the blockchain network that millions of people are mixed up in cryptocurrencies. These people are investors, contract creators, coin creators, miners, etc. So, the algorithm of smart contracts should be capable of handling and recording all of this jumbled data, which revolves around billions of USDT being sold and bought each second of the day? The amazing thing is, not only does the program of smart contracts accomplishes all the said tasks, but it also replaces the retailers assigned by authorities. Eventually, ridding you of the fuss of dealing with incompetent employees.

The rules of smart contracts are not extremely complicated. Whatever the terms and conditions both litigants agree upon, those will be cemented for life in the blockchain network. The nodes, digital ledgers record cryptocurrency transactions, refresh all the data in the network, making it available to all the participants as well. Hence, always double-check the prerequisites before concurring with the said terms.

Security Protocols of Smart Contracts

The data of people working in the crypto market and blockchain networks must be secure. Even if a disagreement ever occurs, the encrypted codes under the umbrella of smart contracts are solid enough to stop the party from backing out of any kind of transaction. The reason behind such intact and secure contract details is the use of recognized programming languages.

In the case of the Ethereum blockchain network, the world’s second most popular blockchain after Bitcoin, a certain Solidity programming language is used to write encrypted codes for smart contracts. Moreover, each time a smart contract is carried out, the Solidity programming language code stores the data in the network, guaranteeing the security of the precious data.

One of the effective features of adopting such a dependable programming code is that no hacker or invader can manipulate the codes. On the other hand, even if some computer geek tries to challenge the smart contract security, the system automatically starts fighting and hampering the invader’s efforts, just like white blood cells when uninvited foreign bodies enter the body.

Smart Contracts in Different Blockchain Networks

We have already discussed that the Ethereum blockchain circuit primarily adopts the smart contracts system. The king coin, bitcoin blockchain, also embraces a smart contracts system. The transactions in the BTC blockchain implement a much simpler version of the smart contracts that are applied on the Ethereum blockchain network. Although, there is another system of keeping track of the dealings in the BTC blockchain known as the lightning network. This is a second option only on the BTC blockchain that allows dealers and investors to go off-chain of the whole network. This layer increases the scale of the BTC blockchain’s operation and makes it feasible for the participants to carry out their transactions.

Ethereum blockchain does utilize the smart contracts’ system only, but there is a special case. Ethereum is unique compared to all other blockchain networks because of its distributed state machine status. Other blockchains, including the primary coin Bitcoin itself, are considered to be distributed ledgers. This special status of the ETH blockchain is due to its possession and utilization of Ethereum Virtual Machine (EVM). This machine stores all the smart contracts’ data and their encrypted codes.

The Cardano blockchain, with about 2500 active hosts, housed 200 plus smart contracts were listed in the September of 2021. Unlike ETH blockchain, ADA does not use Solidity programming language. The smart contracts of the ADA blockchain network are commonly encrypted by using Marlowe, Plutus, and Glow programming languages.

Written Contracts vs. Smart Contracts

One of the prominent differences between the two contracts is the language used. In written contracts, a human language is applied to the paper. While in smart contracts, a computer-generated programming language is used. Certain languages like Solidity programming language are pretty solid, ensuring the safety of valuable contracts.

Written contracts have all parts and terms of the document automated. In smart contracts, only transactions between the two sides are to be automated, ensuring more flexibility and room.

The agreed terms can be included in the document of the contract when dealing with executed contracts. But, while doing business in the blockchain networks, the conditions of the contracts are copied by nodes forever.

Advantages of Smart Contracts

There are numerous benefits of smart contacts and their application in the blockchain. These contracts conserve a huge amount of time and are quite efficient. Also, all the contractual obligations and records are visible to everyone in the network. The operation of smart contracts guarantees the security strong enough to absorb manipulating forces.

As we all know, time is precious and needs to be valued. Blockchain networks understand the concept of time conservation, and hence, all the events and actions involved in investing or selling crypto coins are self-regulating following efficient computer protocols. This approach avoids unnecessary time consumption. The solid wall of security around these obligatory smart contracts is partially strengthened by the absence of any kind of supervisor or third party. As there will be no intermediary other than the people responsible for the sole dealing, the chances of any unwarranted risk plummet even more. The signed legal contracts are flexible only for the two interested parties that bind the contract.

Smart contracts save a huge sum of money and time. Brokers take time, money and add unnecessary stress to the minds, which should only be focusing on mining and crypto market trends. Another feature of smart contracts that is beneficial for participants is the transparency of the binding contracts. Once the two groups agree on similar terms and conditions, the circuit immediately makes it visible and transparent to crypto enthusiasts carrying out that particular obligation. This way, a piece of evidence is stored, and no one can back out of the deal once it is locked for life.

Unlike executed contracts, smart contracts are multiplied in the blockchain network making it impossible to lose the document. Although it is practically non-existent that such an event would transpire, the multiplication of the original code ensures that the data is never lost. When we say that smart contracts do not require a third party, it is true because the duties of the executor of the deal are being carried out by the Artificial Intelligence of blockchain itself. For example, when you misspell anything on the form, the AI picks it up and rectifies your mistake.

Potential Threats to Smart Contracts

Like everything else in life, smart contracts are also not perfect. Firstly, it seems that the whole blockchain operation is virtual and computer-controlled but, the reality is that the foundation of the system is laid by humans. Moreover, as humans are also not perfect, the possibility of an error is expected. Even though the blockchain industry is far bigger than a minuscule error, such small errors can lead to destructive and drastic results.

A similar example of an event occurred on DAO, Ethereum’s decentralized organization, in 2016. Invaders benefited from a coding error in the system and sucked the funds out of one of the fundraising smart contracts.

It is great that no mediator or broker is required to agree with the sides, but the process is not completely dependent on the parties interested only. Government taxes and fees mix frustration in the potion of smart contracts. Ideally, a system runs without the involvement of any other authority but that is unrealistic even in the case of smart contracts.

You might have heard a lot by now that the data of smart contracts are easily accessible on the blockchain platform. But, what if you want to take the information outside of the network it is stored in? The answer is unfortunately you cannot. The same principle applies the other way around, meaning that you cannot upload any data from an outside source in the documents of smart contracts. However, the concept of oracles is inducted which could potentially make it convenient to outsource data from smart contracts.

Since the practical application of blockchain networks, one of their biggest challenges is to expand its branches. The reason primarily is the time taking process of transactions. Such barriers are unavoidable but there are whispers of improving this state of the network as well. The solution is expected from Ethereum 2.0 project. Until we wait for its inception, the frustration of the current state continues.


There is no denying the imperfections and faults of the smart contracts system in the blockchain networks. However, the fact that these computer-regulated contracts are the path to the future, should also be registered. The advantages and benefits occupying the smart contracts’ road are quite bigger than the doubts and challenges that such contractual systems face. The practical application of these smart contracts in the major blockchain networks like Ethereum and BTC has produced positive results. Moreover, the news of updates on smart contracts’ systems has added another layer of security and accessibility around the many features that inhabit the blockchain industry.

The world of crypto is moving very fast in the right direction hence, attracting masses every day towards its avenues. The increasing force in the networks requires a particular system with precise attributes and smart contracts prove their significance every day. The system of smart contracts has disposed of all the distractions in your path making you focus clearly on your goal. You no longer need to worry that your intermediary is not responding or that your documents are nowhere to be found. All is taken care of under the authority of smart contracts making it a smooth ride for you while dealing with cryptocurrencies.

The radius of smart contracts’ adoption has expanded greatly in the last couple of years. Banks have incorporated this form of contractual obligation to go about their business with clients every day. Insurance companies have replaced the traditional executed contracts with smart contracts as well. Smart contracts are very much a part of a major chunk of the business community and many expect that soon it will be a common source of contractual agreements between people and businesses everywhere. Nevertheless, the system is vague in many aspects and can be malfunctioning but the future holds mysteries and only time can tell what becomes the fate of smart contracts’ implementation.

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Larry Wright

By Larry Wright

Larry Wright is a Pulitzer Prize-winning journalist and author. He is known for his insightful reporting and his ability to delve into complex issues with clarity and precision. His writing has been widely acclaimed for its depth and intelligence.