What is a Smart Contract and How Does It Work?

• What is a Smart Contract?

• Smart Contracts are digital contracts stored on a blockchain that is automatically executed when predetermined terms and conditions are met.

• What you need to know about Smart Contracts.

Smart contracts are simply programs stored on a blockchain that run when pre-determined conditions are met.

They are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome without third-party involvement or time loss.

Within a smart contract, there can be as many stipulations and conditions to be met as possible that are needed to satisfy the participants that the task will be completed satisfactorily.

To establish the terms and conditions required, participants must determine how transactions and their data are represented on the blockchain, agree on the conditions, then rule out all possible exceptions and define a framework for resolving disputes.

One benefit of a smart contract is that it does not need brokers or intermediaries to confirm the agreement, hence, they eliminate the risk of manipulation by third parties. Also, the absence of a third party or intermediary in smart contracts results in cost savings.

• How does Smart Contract works?

Smart contract works automatically when predetermined conditions are met; to make a smart contract, you have to;

a. Transfer contract terms into code:

When the terms of the contract are successfully determined by the contractual parties, they reach an agreement, and then finalize the term of the contract. After finalization, the finalized terms are then translated into programming code. The code represents a series of conditional statements that describe the possible scenarios of a future transaction.

b. Store the code in a blockchain:

The code should be stored in a blockchain and then replicated between participants. Examples of blockchains used to store a smart contract are Ethereum, Solana, Cardano, Stellar, Cosmos etc.

c. Run the code:

The code is then run and executed by all computers in the network. If the term of contract is fulfilled and verified by all participants of the blockchain network, then the relevant transaction is executed.

When a term is satisfied, computers in the network verify its correctness.

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