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What is a smart contract and how does it work?

As blockchain technology continues to gain traction in various industries, smart contracts are becoming an increasingly popular way to execute transactions. 

But what exactly are smart contracts?

At their core, smart contracts are self-executing programs that automatically enforce the terms of an agreement between two or more parties. They are built on top of blockchain technology and are designed to be transparent, tamper-proof, and immutable.

Smart contracts play a crucial role in blockchain technology as they offer a faster, cheaper, and more accurate alternative to traditional contracts, which are prone to errors and inefficiencies.

Smart contracts were first introduced in the mid-1990s by Nick Szabo, a computer scientist and legal scholar. He imagined them as digital protocols that could help with the negotiation and enforcement of a contract. 

The first platform for smart contracts, called Ethereum, was released in 2015, and many other platforms with different features and abilities have since emerged.

How Smart Contracts Work

Here are the steps involved in how smart contracts work:

Smart contracts are computer programs that run on a blockchain network and are stored on a decentralized ledger.

The parties involved in the transaction agree on the terms of the contract and encode those terms into the smart contract using code.

The smart contract is then deployed on the blockchain network, and the parties execute the transaction.

If the conditions of the contract are met, the smart contract automatically executes the terms of the agreement.

If the conditions of the contract are not met, the smart contract will not execute, and the transaction will not occur.

Smart contracts are self-executing and do not require intermediaries or third-party validators.

Compared to traditional contracts, smart contracts are more efficient, cost-effective, and secure.

Smart contracts use "if-then" statements to automatically execute the terms of the agreement between parties.

Smart contracts are stored on a blockchain network, which makes them transparent, Secure, and immutable.

Real-world Applications of Smart Contracts

Smart contracts are increasingly being adopted in various industries due to their numerous benefits such as transparency, security, and efficiency. 

Here are some of the real-world applications of smart contracts:

Financial Transactions 

Smart contracts automate financial transactions and eliminate intermediaries like banks. They can also facilitate the trading of financial assets, reducing settlement time and cost.

Supply Chain Management 

Smart contracts can streamline supply chain management by automating processes such as inventory, shipping, and payment. They ensure correct delivery and payment verification while providing transparency and traceability to promote ethical and sustainable sourcing.

Real Estate Transactions

Smart contracts can transform real estate by simplifying transactions, managing ownership transfers, executing payments, and enforcing contract terms. They also enhance transparency, reduce fraud risk, and eliminate intermediaries, leading to faster and more cost-effective transactions.

Voting Systems

Smart contracts enable secure and transparent voting systems that resist fraud and tampering, ensuring accurate and verifiable results. They also allow remote and secure voting, increasing voter participation.

Insurance Claims

Smart contracts have the ability to automate the process of insurance claim processing, which can lead to a reduction in time and cost. These contracts can verify claims and only pay out if certain conditions are met, which can prevent fraudulent activity from occurring.

Intellectual Property

Smart contracts can manage intellectual property rights by registering and enforcing them, and automatically distributing royalties and fees to the rightful parties.


Smart contracts can automate healthcare processes and manage patient health data securely, ensuring that only authorized parties can access it. They can also automate payment processes, making payments only if specific conditions are satisfied.

Examples of Smart Contract Platforms

Smart contract platforms allow developers to create and deploy smart contracts, and for users to interact with them.

Here are some of the most popular smart contract platforms.


Ethereum is the most widely used smart contract platform and is often considered the pioneer of smart contracts. It uses its native programming language, Solidity, to create and deploy smart contracts. Ethereum offers a wide range of use cases for smart contracts, including financial transactions, decentralized applications, and voting systems. 

For example, the decentralized finance (DeFi) ecosystem built on Ethereum allows users to access a variety of financial products such as loans, savings accounts, and insurance, all through smart contracts.


EOS is a blockchain-based platform that enables developers to build decentralized applications and smart contracts. It aims to provide faster transaction speeds and higher scalability than other blockchain platforms. EOS uses a delegated proof-of-stake consensus mechanism and supports various programming languages such as C++ and Rust

For example, Voice is a decentralized social media platform that is built on the EOS blockchain and aims to provide a more transparent and user-centric alternative to traditional social media platforms.


Cardano is a smart contract platform that uses a proof-of-stake consensus mechanism and aims to provide a more sustainable and energy-efficient blockchain. It supports smart contracts written in various programming languages and is known for its high security and transparency. 

For Example, Cardano is partnering with the Ethiopian government to create a blockchain-based national identity system, providing secure identification for millions of Ethiopians and potentially transforming the country's economy and society.


Tezos is a self-amending blockchain platform that allows developers to create and deploy smart contracts. It uses a proof-of-stake consensus mechanism and is known for its on-chain governance system, which enables stakeholders to propose and vote on protocol changes. 

Ex: Tezos and Elevated Returns partnered to tokenize St. Regis Aspen resort on the Tezos blockchain platform. Investors can now purchase fractional ownership in the luxury resort, providing a more accessible and efficient way to invest in real estate.

Benefits of Smart Contracts


Smart contracts automate the process of contract execution and eliminate the need for intermediaries, leading to faster and more efficient transactions.


Transactions conducted via smart contracts are recorded on a public blockchain ledger, providing transparency and auditability.


Smart contracts are secured by blockchain technology, which makes them safe and resistant to hacking.


Smart contracts execute exactly as programmed, eliminating the risk of errors and ensuring accuracy.

Cost savings

Smart contracts reduce the need for intermediaries, which can result in cost savings for all parties participating in the transaction.


Smart contracts are self-executing and provide a level of trust that traditional contracts cannot offer, as the terms and conditions are transparent and cannot be altered once executed.

Future of Smart Contracts

Smart contracts have the potential to transform the way many industries operate, from finance and supply chain management to real estate and voting systems. As technology continues to evolve, it is likely to have a significant impact on businesses and consumers alike.

Governments and regulatory bodies will play an important role in shaping the future of smart contracts. As these contracts become more prevalent, governments may need to establish legal frameworks and regulatory guidelines to ensure their proper use and prevent fraud. 

In addition, there may be a need for collaboration between governments to establish cross-border standards for smart contract adoption.

The integration of smart contracts with other emerging technologies such as artificial intelligence (AI) and the Internet of Things (IoT) may also have a significant impact on industries. 

Smart contracts could be used to automate complex processes involving these technologies, creating more efficient and secure systems. 

For example, smart contracts could be used to automate insurance claims using IoT sensors or to automate supply chain management using AI-powered logistics systems.

Final Thoughts

Smart contracts offer numerous benefits, but they also pose technical and legal challenges that must be addressed for widespread adoption. However, efforts are underway to overcome these obstacles. 

As technology advances, smart contracts are likely to play an increasingly critical role in industries such as supply chain management and real estate by improving efficiency, cutting costs, and enhancing security.

smart contracts represent a significant advancement in transaction methods, and the future looks promising. With proper education, innovation, and collaboration, the potential of smart contracts can be fully realized. 

Let us embrace this revolutionary technology and unlock the possibilities with smart contracts.

Are you ready to embrace the power of smart contracts for your business? 

Contact us today to learn how we can help you harness this technology and transform your operations.



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