# # #

A Guide to Smart Contracts on Blockchain

a carton featuring a man beside a vault-like circle and bitcoin logo to represent smart contract

Smart contracts are mentioned a lot in the bitcoin and blockchain community. If you read our yield farming guide, you would have seen it. In fact, it’s in several of our articles. Those might have left you wondering, “what are smart contracts?” So, it’s only fair to explain what it is to you to help you learn how it affects your investment in cryptocurrencies.

What is a Smart Contract in Blockchain?

A smart contract is a program written in code stored in a blockchain that automates blockchain transactions without the need for a third party.

Smart contracts ensure that and only run when standard requirements are met so that everyone involved is certain of the outcome.

How Did Smart Contracts Come Into Existence?

Nick Szabo, an American Computer Scientist famous for his works on digital currencies and blockchain networks, introduced the smart contract. 

Nick Szabo, founder of the smart contracts

During his research in the 1990s, he said that a smart contract is a digital version of standard paper works that verifies commitment and mandates the terms spelt out in the contract.

Smart contracts are being carried out through a blockchain network to ensure transparency of contractual terms. Also, there is a replication of the smart contract code on many computers that contain the network.

Smart contracts can execute without any middleman or intermediary. In contrast, many traditional contracts need the help of an agent or before execution. Therefore, it makes smart contracts decrease redundancies.

Smart contracts are commonly associated with cryptocurrencies nowadays. They are used throughout most available cryptocurrency networks and are one of the many noteworthy properties of Ethereum.

What are Smart Contracts Good for in Blockchain?

So far, we have used a ton of big terms to explain smart contracts. If you’re new to crypto, you might not understand them. This section will give you an overview of the usefulness of smart contracts.

On the blockchain, smart contracts simplify transactions between any party, whether anonymous or identified, without the need for a third party or middleman. It cuts down costs and provides credibility to transactions and contracts on the blockchain.

That is not all that smart contracts do in general.

You can use smart contracts for a range of situations, including handling contracts, business, trade, legal processes, law, insurance, and so on. For the sake of this article, we will focus only on blockchain and blockchain transactions.

How Do Smart Contracts Function?

Smart contracts function similarly to vending machines. When you deposit the considered amount of cryptocurrency into the smart contract for your transaction, a deposit occurs in your account. Smart contracts predefine and regulate all of the standards and punitive measures.

Here’s more:

Independent, but Dependent

A smart contract is independent – it can function itself but with any quantity of other smart contracts. The configuration is in such a way that they are dependent on each other. 

For instance, the successful completion of one smart contract can initiate the destruction of the other and many more. In some schools of thought, smart contracts can power critical networks and government agencies. 

To a significant degree, smart contracts have been applied in different cryptocurrency frameworks where all of the rules and regulations are pre-defined, allowing the system to operate efficiently.

Needs a Suitable Environment

Smart contracts must continue operating within a suitable environment to serve a purpose and function effectively. 

First off, the environment must allow public-key cryptography, allowing users to sign off on transactions using their specifically generated cryptographic cyphers. Going this way is the appropriate system used by most of the existing cryptocurrencies. Also, they necessitate an open and decentralized financial world for all parties. 

Furthermore, the smart contract’s digital data source must be fully satisfactory. It involves using root Secure Sockets Layer (SSL) security certificates, HTTPs, and other secure-connection frameworks already used on most modern tech.

Blockchain technologies, particularly the Ethereum Blockchain, are suitable platforms for smart contracts.

What are the Integral Parts (Objects) of Smart Contracts?


Signatories refer to the parties using the smart contract.

The Subject of the Agreement

The subject of the agreement is the other integral part of smart contracts. This object can only serve a purpose within the smart contract’s environment, which is the subject. 

Strict Criteria

In any smart contract, there must be strict criteria (sometimes called specific terms). Those terms must be mathematical and described using a programming language suitable for the smart contract’s environment. 

It involves what is required of parties and all of the guidelines, incentives, and measures related to the terms.

How Do You Benefit From Smart Contracts?

Smart contracts don’t make you money directly, but they secure your money and transactions in general. They do that by providing ASSET. That stands for Autonomy, Safety, Savings, Efficiency and Trust.


Smart contracts eliminate the requirement for a third-party middleman, granting you complete authority and autonomy. What is worth more than this?


Smart contracts are challenging to decrypt if executed properly. Furthermore, ideal environments for smart contracts are secured with complicated cryptography, ensuring the safety of your crypto assets.


Smart contracts eliminate the need for registrars, mortgage brokers, aides, assistance, and various intermediaries. In turn, the exorbitant services charge for their service provisions.


Smart contracts will save you a bunch of time that you would otherwise spend processing documents, mailing or conveying them to designated points.

What Are The Best-Performing Smart Contracts?


Currently, Ethereum is a hotspot for DeFi applications and project work, just as it was for ICOs during the previous bull market. 

New ecosystems contending for a segment of the DeFi pie have emerged, but not a solitary project has jeopardized Ethereum’s position.

Ethereum’s success is primarily due to its position as a pioneer in the smart contracts space. The project’s creation aims to be the best solution for smart contracts with the support of a dedicated and development-oriented team of professional programmers.

Ethereum has reigned supreme in the world of smart contracts. Even though many contenders have tried unsuccessfully to become ‘Ethereum torturers’, none could outperform Vitalik Buterin’s founding. 

Even the iconic NEO ecosystem, which aims to achieve a new smart economy, formerly known as Antshares, failed to establish itself as a notable smart contracts gateway, despite having the opportunity during the previous bull market.

Binance Smart Chain

Binance logo with binance chain beside it.
Source: Binance

The Chief Executive Officer Changpeng Zhao officially confirmed the Binance Smart Chain (BSC) emergence as a substitute to Ethereum to seize the decentralized DeFi market. 

It is a blockchain that runs concurrently with the existing Binance Chain, except that Binance Smart Chain supports smart contracts and is Ethereum Virtual Machine (EVM) compatible.

The blockchain network employs its Proof of Staked Authority (PSA) cryptographic protocol to handle transactions and reward stakeholders. 

Blocks are triggered every three seconds, and anyone who effectively stakes BNB can access the network as a verifier.

Developers can easily port Ethereum dApps to BSC due to the previously stated functionality. Token’s authorization is in the BEP-20 template, but they are also compatible with the previous BEP-2 and BEP-8 specifications.

It is no surprise that the Binance Smart Chain has an increased influence in the market of smart contracts because it was created by the industry’s largest retail cryptocurrency exchange. Developers have fully embraced the platform for the development of DeFi platforms.

BSC has high transaction throughput, information sharing, and reduced costs. However, it is not as decentralized as ETH’s.


One of the former co-founders of Ethereum (ETH), Gavin Wood, introduced and created Polkadot which is just another smart contract environment.

Polkadot is well-known for hosting parachains on its blockchain network. It indicates that the framework will run various chain management within an existing blockchain, a functionality known as sharding. Sharding scales blockchains by allowing them to handle more exchanges than normal.

Polkadot can integrate multiple features encountered in other projects, thanks to the extensibility of parachains.

Polkadot is sophisticated to summarize in just a few lines of text. Despite still being new in the market, the smart contract ecosphere has risen to fifth place on cryptocurrency leaderboards in a relatively short period. Is it due to their policy framework, staking capacity, or sharding

Nobody knows for sure. Polkadot, on the other hand, is a strong contender in this profitable target market.


Despite its reputation for being excessively centralized, the blockchain network continues to rise to the challenge for the title of top smart contract ecosphere. Amidst being far from dominant in this space, EOS is an alternative that any true crypto enthusiast ought to be aware of.

EOS, like the previous competitors, uses its consensus style known as Delegated Proof-of-Stake (DPoS). The strength of staking alone allows their framework to process millions of transactions per second. Furthermore, the system creates blocks swiftly and at a lower cost.

EOS implements smart contracts using WebAssembly (WASM) as its virtual machine and writes them in C++, a programming language. Even though they work in a recognizable software environment, it is much more convenient for EOS to connect with present-day developers.

However, due to its centralized framework, EOS does not have stellar notoriety. Many analysts predict that Chinese whales manipulate the blockchain and that investors have no way of regaining control of the network. 

The situation has become dire that a subset of the EOS society, known as the EOS Tribe, has decided to abandon the framework as a block maker.

What Are The Problems Associated With Smart Contracts?

As there are advantages to a smart contract, there are also disadvantages and limitations which affect the smooth use. Below are a few of the problems associated with smart contracts.

Difficulty In Changing The Process

Changing smart contract systems is difficult, and any errors in the framework are very expensive and consume much time to fix.

The Use of Unclear Terms

Though smart contracts contain definitions that are just not fully grasped, smart contracts cannot always deal with ambiguous contractual terms.

Third-Party Involvement

Even though smart contracts aim to eradicate active third-party participation, this is not always achievable. Third parties behave differently than they do in traditional contracts. 

Lawyers, for example, will not be required to plan individual contracts; nevertheless, developers will require them to comprehend the conditions to generate codes for smart contracts.

Is Smart Contract Legal?

Smart contracts are a relative innovation. Even though it holds potential for people to use around the world, it is not without flaws. For example, the code that makes up the smart contract must be bug-free. Bugs create opportunities for fraudsters and hackers, as was the situation with the Decentralized Autonomous Organization (DAO) hack.

Furthermore, the uniqueness of the innovation raises a slew of questions. 

How will the government decide how such contracts will be regulated? What occurs if the smart contract is unable to gain access to the subject of the agreement? What if something unanticipated occurs?

Nonetheless, smart contracts are still new. The technology will gradually improve. Smart contracts might become an important focus area in the legal world as it has taken hold in the blockchain.


That is it for a smart contract. As you have read in this article, it makes bitcoin, Ethereum, and the entire blockchain network better.

Smart contracts don’t look to be going anywhere. If you have any questions concerning this, reach out in the comments. Don’t forget to subscribe using the form below, so you get tips, resources, insights, and impactful news on cryptocurrency investments.

Get exclusive insights

Get exclusive insights that are only for the Passive Streams community

About the author

Leave your comment

Leave a Reply


Free Money




Sign up for weekly tips on how to make free money.