A smart contract is a program that activates and enforces a certain contract between two or more parties. Learn how smart contracts work and what they can be used for in this article. Impossible, you say? Smart contracts prove otherwise.
A smart contract is a program that activates and enforces a certain contract between two or more parties. It follows the rule “if… then… “, exists in a transparent, decentralized environment and is irreversible unless programmed otherwise.
A well-designed line of code put into a suitable environment can undertake the work of almost any intermediary, control the execution of the deal, and save your money. Smart contracts came into being to make our everyday lives easier and legal deals more affordable by replacing people with dedicated tech.
A Bit of History
Smart contracts were pioneered by Nick Szabo, an American cryptographer and computer scientist, who is believed to be Satoshi Nakamoto by some people. In 1994, he proposed the idea of a digital protocol that can be used to pass on information by using mathematical algorithms. Once the pre-arranged terms are fulfilled, the corresponding transaction is processed.
But before blockchain tech came along, smart contracts had been missing the proper environment for development. Until Satoshi Nakamoto introduced blockchain in 2009, the logic of smart contracts did not make sense. Although it is possible to program smart contracts on the Bitcoin network, the whole process will be difficult and the end result will be limited. But once the Solidity-powered Ethereum network started growing, it proved to be the perfect ground for designing complex smart contracts.
Smart Contract Use Cases
The easiest way to understand how smart contracts work is to use a real-life use case. Let’s say you want to rent out your apartment to someone you’re not familiar with. .The majority of people prefer to leave the paperwork to the real estate agents and let them handle the legal side of things. For their services, the agents receive commission.
With smart contracts you won’t need help from any third parties. It is possible to use a smart contract with your future tenant which kicks in once the tenant transfers a certain amount of money to you. You won't need to put blind trust in your tenant as the entire money-collection process will be automated. What’s more, you can set a number of additional rules. For example, if they are late with the next monthly payment, you can charge them with a penalty fee. Or terminate the contract if they fail to pay rent during the pre-defined period of time.
Smart contracts functionality is potentially limitless. Imagine buying a property and renting it out together with your partner. This sort of complex case can also be handled by smart contracts, so you will receive compensation based on your investment percentage.
Real estate is not the only area where smart contracts can come in handy. Mortgages, insurance, voting, supply chain, e-commerce, various financial services, and any other industry that depends on transferring finance (or other value) can benefit from implementing the smart contract tech.


