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Smart Contracts work in BlockChain

The concept of smart contracts was first presented by cryptographer Nick Szabo in the year 1994. The idea was to remove the middleman (banks, lawyers, etc.)from a transaction, making the transaction trustless and virtually less expensive.

To understand the working of smart contracts, you need to understand exactly what they are.

What are smart contracts?

On a fundamental level, smart contracts are just executable programs that are written in a high-level programming language. A smart contract represents arbitrary and predetermined criteria that trigger the transaction.

The coding language required to support a smart contract should generally be a Turing complete, i.e., the language can be programmed to solve any computation problem. Ethereum is the first blockchain to host smart contracts, followed by other blockchain networks like NEM and NEO.

How do smart contracts work?

  1. Two parties come to an agreement; they officialize them in the form of a computer code that runs on a blockchain, i.e., they make a smart contract. Since the smart contracts run on a blockchain, the code is stored in a public ledger( database) that is immutable.
  2. The transaction is triggered only when all the conditions that both the parties agreed upon are met. Since a smart contract is a computer program, anyone with mal intentions cannot forge or change it.
  3. Once the conditions are met, and the payment is triggered, the transaction is then processed by blockchain automatically while ensuring the security of the transaction.

Does Smart Contracts Work for India Inc.? - Mantra Labs

Why are smart contracts better than conventional agreements?


A smart contract compels both parties to record all terms and conditions in explicit detail; hence they are accurate.


Since the terms and conditions of a smart contract are visible to all the relevant parties, smart contracts are transparent in nature.

Security and reliability

Smart contracts use the highest form of data encryption available, plus the transactions take place in blockchain; hence it is one of the most secured forms of contracts available.

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