Agreement without third parties. How a smart contract works

The advent of cryptocurrencies brought the world the technology of a decentralized ledger, which, over time, began to be used outside of digital finance. Smart contracts in the blockchain can be viewed as a universal mechanism for the interaction of two or more persons who have mutual obligations. A smart contract guarantees strict compliance with the clauses of the contract and makes it possible to remove the unnecessary party from the process – intermediaries. We will talk about how, where and why you can use smart contracts in this article.


A smart contract works according to a given algorithm of actions, which is initially recorded in the blockchain. It starts automatically when the agreed user conditions are met. Let’s take an example. Selling and buying digital assets. Cryptocurrency transactions are usually anonymous and unregulated. If you apply a smart contract during the transfer of a crypt, then this will avoid unwanted fraud and ensure a correct transaction.

A smart contract is the basic element on which decentralized applications run. Such contracts provide a guarantee that all clauses of the agreement will be strictly observed automatically. Due to the fact that the rules of smart contracts are written in the blockchain, they cannot be changed. Users who have resorted to using a smart contract are obliged to fulfill all obligations under all clauses of the contract.

How a smart contract works

A smart contract runs on a blockchain and looks like a program code. It uses mathematical algorithms and a programming language to describe the conditions that must be met for the implementation of any transaction. The result of transactions will also enter the blockchain and become part of the ledger. Based on this, it can be understood that the main factor of any smart contract is 2 complete and correct descriptions of the terms of the contract.

Areas of use

Smart contracts speed up processes of the same type and, moreover, remove the need for intermediaries. This in turn helps reduce costs and eliminates additional human error. Despite the fact that smart contract technology is most often presented in the field of cryptocurrencies, it is universal. The scope of application is increasing every day. There are quite a few industries where smart contracts can work well. We will analyze some of them in more detail.

Health care

The medical field uses a large amount of data that is constantly moving. Patient records, drug prescriptions, test results, health insurance – all information about this is constantly in motion. And this is a small part of what is used in the treatment and examination of patients. In addition, some information may be confidential. The creation of one database based on the blockchain will make it possible to make everything automated and at the same time maintain anonymity.


Lending is an area where smart contracts can be beneficial. Payment history, automatic loan repayment, fraud detection – all this can be written in the blockchain code.

In addition, a smart contract can optimize tracking the movement of assets and check the status of collateral in mortgage lending. In the banking industry, many processes can be automated and thereby reduce overhead costs.


When renting out real estate, things or vehicles, simple and repetitive operations are carried out:

  • Choice of what will be rented;
  • Bond deposit;
  • Periodic renewal fees (not always).

All this can be written in the blockchain, which will significantly save time and significantly reduce costs.


If you start using smart contracts in the field of gambling, then user confidence will increase, since the conditions for drawing bets in online casinos and lotteries will be spelled out in the blockchain code and cannot be changed. This will eliminate the risk of fraud. When the winner is determined, the calculation and payments will take place automatically.


The main obstacle to universal adoption of smart contracts is the legal sector. However, given the potential of blockchain, legality issues remain a matter of time. Popularization, a detailed description of the structure of smart contracts, as well as the benefits that their use gives, will defeat people’s mistrust. Already, such agreements can replace most of the document flow in the field of management and finance.

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