Smart contracts: Benefits and Advantages

smart contacts

Have you ever made a deal? And have you always been 100% sure that the other party would fulfill all its obligations under the contract? The answer is obvious, and here come the pains of both parties using a traditional approach to contracts:

  • mistrust between the parties
  • risks of non-fulfillment of obligations undertaken by one of the parties
  • the number of intermediaries between the parties can be an absurdity carried to its ultimate.

Now imagine, you may create a piece of computer code (instead of a classic contract) and automate its execution. That will eliminate not only distrust, financial and other risks but also remove unnecessary intermediaries. And it’s possible to apply it in any business domain.

What is a smart contract

Smart contracts are small programs (a small set of code lines). They are recorded on the blockchain and automatically executed when meeting programmed conditions. Two or more parties can interact using smart contracts without even knowing and trusting each other – blockchain technology ensures accuracy, transparency, and accounting of all the data. In most cases, if a smart contract is not initiated it does not perform any action. In other words, only when a previously programmed condition is triggered, the smart contract automatically fulfills the corresponding agreement.

What is blockchain

  • Blockchain is a distributed ledger in which all transactions are recorded digitally. 
  • The blockchain records, stores, and displays the entire history of all transactions. 
  • A transaction is only added to the blockchain after it has been confirmed using the truth check protocol. 
  • Every record on the blockchain is encrypted and immutable. 
  • The entries are transparent, and all parties to the transaction have access to the same version of the truth.

The value and benefits of smart contracts

Smart contracts: 

  • eliminate standard risks, 
  • remove unnecessary intermediaries, 
  • and speed up the processes. 

They can be used anywhere in the world when buying and selling real estate and movable property, for example, or in education, or in investing – wherever there is a need for it.

Example of a smart contract

Let’s say, you rent a house directly from its owner, using a smart contract. At the moment of charging you, a smart contract is launched, and it automatically sends you a digital password (key) to your leasehold house. 

Meanwhile, the house owner cannot take your money until you arrive at the house. And if the smart contract has not confirmed that you arrived and activated the digital key within the specified time range, then the funds you’ve paid would be automatically returned to your account but reduced by the penalty for canceling the lease. 

And you don’t need Booking or Airbnb services, which will significantly save all parties costs.

Advantages of smart contracts

The benefits of smart contracts mostly result from the benefits of blockchain:

Autonomy and trust

Smart contracts automatically execute transactions according to predefined rules. No one can change the smart contract for their purposes. No middlemen (like a lawyer or any other) are involved in the process of contract fulfillment.

Reduced costs

Using smart contracts, you don’t have to pay the extra money and take it to the help of a lawyer, notary, or other expensive intermediaries. Less human intervention results in lower costs.

Speed and precision

A smart contract is more accurate than a traditional one. Smart contracts increase the speed of business processes. Also, they are less prone to errors often appearing in human-filled documents.


  • No one can lose a smart contract. Recorded and encrypted on the blockchain, it is safe and secure at any moment.
  • They are immutable – no one can make such a contract disappear, and you always have access to them.
  • Blockchain eliminates the risk of manipulation as execution is managed automatically by the entire network.

Lessons Learned

  1. Smart contracts can provide increased transparency and lower costs. They can improve efficiency and reduce bureaucratic costs. 
  2. Smart contracts are highly customizable and can be designed in many different ways, offering solutions and fitting the current business needs.
  3. Blockchain technology and smart contracts should go hand-in-hand to bring benefits to varied business domains – from financial services to supply chain management.