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How Smart Contracts Work in Blockchain?

How Smart Contracts Work in Blockchain?

Smart contracts are simply programs  that exist on a blockchain.  They run when meeting specific requirements. They are useful to automate the execution of an agreement, so that all the participants can be certain of the outcome. This also signifies no involvement of intermediary or third party. They are programs that execute exactly as they’re set up by their creators. However, just like a traditional contract, smart contracts are enforceable by code. They also automate a workflow. And also triggering the next action when meeting specific requirements. There are big software companies in Toronto who are working on blockchain technology for validating trading data.

History/ Introduction

Sabzo, a cryptographer, named the application of decentralized ledger for smart contracts. However, these contracts are written in code which is useful for storing and relocation on the system. Supervising by the network of computers constitutes the blockchain. These smart contracts can also help in transferring digital assets between the parties under certain conditions. Before going to the whole process, let’s talk about blockchain technology.

Blockchain technology 

Blockchain is basically a shared, and  immutable ledger. This is useful for recording transactions, and impossible to hack the system. An asset can be tangible or intangible. Tangibles are a house, car, cash, or land. Intangible includes intellectual property, patents, copyright or branding. Any assets  can be traded on a blockchain network. However, this reduces risks and cuts costs into the whole process. 

Key Elements of Blockchain

  • Distributed ledger technology 

All participants are accessing the distributed ledger. And it’s an immutable record of transactions. With this ledger, transactions take place only once. It eliminates the duplication of effort that’s typical of traditional business networks.

  • Immutable records

No participant can change with a transaction, after it’s been taking place in a blockchain. If the transaction  includes an error, a new transaction helps to reverse the error. In this process, both the transactions are visible.

  • Smart Contracts 

To speed transactions, a set of rules known as smart contracts exists on the blockchain. This is then executed automatically. A smart contract defines conditions for:

  • corporate bond transfers,
  • Define the terms for travel insurance to be payable

Let’s now understand the working of smart contracts. 

How Smart Contracts Work in Blockchain?

Smart Contract Working

Think smart contract as digital, if-then statements between two or more parties. If one group’s needs are met, then the agreement is honored and it signifies complete. 

Various Steps for Building

  • Agreement
  • Conditions
  • Coding
  • Blockchain
  • Execute recording. Meanwhile, there are top software companies in Toronto who help to increase efficiency of client’s businesses.

Let’s say, a market asks a farmer for 90 earring of corn. The first  will lock funds into a smart contract. This is sent for approval when the latter delivers. When the farmer delivers their obligation, the funds are released immediately. However, the contract cancels and funds are back to the client if the farmer misses their deadline.

The above is a small case of smart contract. A smart contract is simply a program with the security coding of the blockchain. This has details and permissions written in code that require an exact sequence of events. However, this takes place to trigger the agreement of the terms highlighted in the smart contract. 

Meanwhile, this code exists on the blockchain technology. This makes it transparent, immutable, inexpensive and decentralized. Every smart contract contains addresses in the blockchain. 

The bitcoin network is the first to use some sort of smart contracts. This uses them to transfer value from one person to another. The smart contract includes conditions like 

  • Checking if the amount to transfer is available in the sender account. The Ethereum platform continues to rise. This is basically more powerful, because the developers can make custom contracts in a turing complete language.
Idea Behind Smart Contract

The idea behind smart contracts is simple. They works on a basis of simple logic, IF-THEN for example:

  • IF you send me the object A, THEN the sum will be transferable to you and transfer a certain amount of digital assets, THEN the A object will be transferable to you
  • IF I finish the work, THEN the digital assets mentioning in the contract, will be transferable to me
Features to Understand
  • Trust

The smart contract can’t be lost as it exits in the blockchain itself

  • Speed 

Smart contracts use software code to automate tasks. This however reduces the time through all the human interaction related processes. Because everything is codeable the time taken for doing work is the time taken for the code in the smart contract to execute.

Example Use Cases

  • Real Estate

Reduce money paid to the middlemen and distribute between the involved parties. For example, a smart contract can be useful in transferring ownership of an apartment. Once a certain amount of resources is transferable to the seller’s account.

  • A smart contract is deployable in a blockchain that keeps track of vehicle maintenance and ownerships. For example,  doing vehicle maintenance service every six months. This leads to failure which will lead to suspension of driving license.
  • The music industry can record the ownership of music in a blockchain. Embedding in the blockchain, and royalties are crediting to the owner. When the song can be useful for commercial purposes. It also helps in resolving ownership disputes.


  • Management 

The blockchain in management can automate many decisions that are taken late. Every decision is transparent and immutable. This is available to any party who has the authority. For example, a smart contract is deployable to hit the supply of raw materials. When millions of tonnes of plastic bags are produced.

  • Government Elections 

Once the votes exist in the blockchain, it is hard to decrypt the voter address. And then  modify the vote leading to more confidence against the ill practices.

Emerging Future

Nowadays, various smart contract platforms will save businesses time and money. They are revolutionizing how they interact in the supply chain and with their customers. 

However, smart contracts are useful to many banks and insurance organizations in their daily operations. As a result, smart contracts are already here and useful to businesses. Connect with Gyan Solutions to know more about smart contracts.




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