Explaining smart contracts in the blockchain for beginners | smart contracts

 We are in 2022 – there are a lot of people who are not familiar with Blockchain technology but may have a background on Ethereum.

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Ethereum  is the second largest cryptocurrency   with a total market capitalization of more than $44 billion, in order to understand Ethereum, Bitcoin or other digital currencies , every person must understand  ( what are  smart contracts ) .

Ethereum is not just a currency, in fact, the Ethereum currency is a platform or platform that allows building applications in the Blockchain. The Ethereum currency uses the operating system called Ether, which is used to pay for transactions .

The Ethereum blockchain works like the Bitcoin blockchain .

A network of computers (or nodes) runs a program that verifies transactions on the network.

Ether works more as a fuel than a regular cryptocurrency, in the same way that you need gasoline or diesel for your car, you also need Ether to run smart contracts and software on the Ethereum blockchain.

Due to the increasing popularity of the Ethereum currency (this is evident from monitoring statistics on cryptocurrency  trading platforms ).

The question here, “ What is a smart contract ? ” has recently become one of the most popular questions in the field of cryptography – so what is a smart contract ? Well, let’s take a deeper look, but dear reader you should know that by completing this article to the end you will have a complete background on smart contracts

You will know the answer back, what are smart contracts? Simply because we have prepared this article with a simple explanation in an easy and simple way for beginners.

General introduction to the smart contract

The purpose of this article is to help you understand what is a smart contract? How do smart contracts work ? . 

We know that “ smart contracts ” seem tricky at first, so we believe that once we explain it to you in this article, it will be simpler than you think and imagine.

By the end of this article, you will understand how and why smart contracts got started, what code they use, how they can be used, and why they can change the world forever!

Before we get into the technical matters, it is important to talk about the history of the creation of smart contracts.

Knowing why and how smart contracts are created makes it easy to understand their purpose in the blockchain world.

?When were smart contracts invented

In 1994, Nick Sabo (a cryptographer) came up with the idea that he could create contracts in computer code. This contract is automatically activated if certain conditions are met.

This idea will help eliminate recourse to reliable external central companies or institutions (eg banks).

but why? The answer is simple – because you no longer need a trusted third party when making a transaction.

Instead, contracts (or transactions) are executed automatically on a trusted network fully controlled by computers.

Nick Sabo, an American crypto programmer, came up with this idea for years and even wrote a book called Smart Contracts: The Ground Rules for Free Digital Markets.

The problem here was he wrote this book in 1994, when blockchain technology didn’t even exist.

But now in this age . The situation is completely different!

In 2009, Bitcoin introduced the first using blockchain technology.In

2015, the Ethereum currency was founded by a young genius named (Vitalik Buterin) and introduced the first application of smart contracts.

?When were smart contracts invented

Not only do we want to let you know what a smart contract is, we actually expect you to remember the information provided to you.

To do so, we have highlighted three key points that you should read and know and try to remember what a smart contract is:

A smart contract is an agreement between two people in the form of computer code. They run on a blockchain, so they are stored in a public database and cannot be changed .

Transactions that occur in a smart contract are processed by blockchain technology, which means that they can be sent automatically without a third party. This means that no one trusts him !

Transactions take place only if the terms of the agreement are met – there are no third parties, so there are no trust issues .

?How do smart contracts work

Yes, now is the time to answer this important question, so how do smart contracts work

To find the answer, let’s start by looking at how a smart contract is used:

For example /

Let’s imagine that Muhammad wants to buy Joseph’s house. This agreement was formed using a smart contract on the Ethereum blockchain, this smart contract contains an agreement between Muhammad and Yusuf.

In the simplest terms, the agreement would be as follows: “When Muhammad pays Joseph 300 ether, Muhammad will own the house.”

Once this smart contract is entered into, it cannot be changed, meaning that Muhammad can feel safe paying Yusuf 300 Ether for the house.

Without using a smart contract in this scenario, Mohammed and Youssef would have to pay a lot of money to third-party companies, including the bank, lawyer, and real estate agent.

Great, isn’t it? No more commissions and delays waiting for a lawyer and broker to handle the agreement! This is just one of many examples where a smart contract can be used.

Smart contracts are executed automatically after the terms of the agreement are met – this means that there is no need for a third party such as a bank, broker or government.

?How is that possible 

As mentioned earlier, we have the blockchain technology to thank for the effort.

Because of blockchain technology, we can decentralize smart contracts to be fair and untrustworthy. Decentralization means that it is not under the control of a central party (eg a bank, broker, government, etc.).

Blockchain is a shared database run by many computers (called “nodes”) owned by different people, for this reason, no individual or company can control it.

This means that it is almost impossible to hack – if a hacker wanted to attack the blockchain or the smart contracts on it, they would have to hack more than half of the nodes.

Therefore, smart contracts can be executed safely and automatically, without anyone being able to change them! Now you know more about what a smart contract is!

smart contract explained

?What are the uses of smart contracts

As we said before, selling Youssef’s house to Muhammad is not the only scenario in which smart contracts can be used.

Smart contracts can be used for any type of transaction – they don’t have to be financial.

The possibilities of smart contracts are endless, they are currently used in business, financial services, insurance, credit licensing, legal procedures and even for capital financing agreements.

Let’s find out how smart contracts have actually benefited certain industries and how others have benefited from the benefits of smart contracts .

?What are the uses of smart contracts

Insurance companies

Two insurers, Atlas Insurance in Malta and AXA in France, tested smart contracts in 2017. They have tested prototypes of such contracts that would pay fines to airline customers if their customers’ flights were delayed.

Let’s see an example:

Muhammad, about to fly from New York City to Los Angeles, sends $5 in cryptocurrency to Axa’s smart insurance contract and provides his flight number.

 Axa is also sending out $95 for the smart contract. So there’s $100 in the smart contract.

If Muhammad’s flight is on schedule, $100 of the smart contract will be sent to AXA.

But if the plane is delayed, $100 will be sent to Muhammad via the smart contract, that’s all automatic.

This saves a lot of time and money, it also means that Mohammed does not need to trust that AXA will pay him the agreed amount if his flight is delayed – he knows that if he is late, the smart contract will send him compensation immediately ($100).

Insurance companies use smart contracts

health systems

Health systems use smart contracts to securely record and transmit data.

We can already see examples of smart contracts being used in the medical industry such as the EncrypGen app.

This application uses smart contracts to transfer patient data in a secure manner and does not allow access to third parties.

In this way, patients are in control of their information. If researchers want to use patient data, they have to pay for it.

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Health systems using smart contracts


For governments, smart contracts running on a blockchain can make voting systems that are not completely trustworthy make them more secure and trustworthy.

Voting here means, for example, elections, a member of the People’s Assembly, or the President of the Republic, and so on.

Apps like FollowMyVote use smart contracts and blockchain technology to protect votes from fraud.

Once a blockchain voting transaction is written, it cannot be changed.

When the voting ends, the smart contract sends the token to the address indicating the winner of the vote.

In this way, the vote is always fair, which means that the winner is always right.

Governments use smart contracts

Business Management

Companies can take advantage of smart contracts in a number of ways, instead of paying employees, they can use smart contracts to run payroll.

Companies can only set up a smart contract that states that when a certain date arrives, the company will send 2 Ethers to Mohammed.

This means that Mohammed will always be paid on time and never underpaid.

The benefits of this point are very important for the business owner, which is that all work is done automatically and saves him time and money!

It is also important for employees who are widely worried about delaying getting their salary on time

Smart contracts help to run a business

?How are smart contracts created

Smart contracts can be executed on many blockchain platforms, including Ethereum and NEO.

As the Ethereum platform is the most popular and suitable solution for developers, we tell you which Ethereum smart contracts are the best.

Smart contracts are created using the basic programming language in Ethereum, which is called Solidity.

Benefits of smart contracts

From the examples we mentioned, you can see that smart contracts have already replaced intermediaries like, banks, government organizations, corporations, etc..

We’ve also seen the app’s potential for future uses – remember selling Mohamed and Youssef’s house? They didn’t need a real estate agent, a lawyer, or a bank. This is correct?

Therefore, if smart contracts serve their purpose, we may one day live in a world without intermediaries.

Frequently Asked Questions

?Why are smart contracts secure

Smart contracts are only executed if the agreed upon pre-conditions are met and cannot be manipulated afterwards.

?Who writes the smart contract

Anyone can write a smart contract and publish it on the network. For this, you need solid software knowledge and enough ether to execute your contract.

What are smart contracts?

A smart contract is a contract preparation protocol that automatically performs all the expected actions in it using information related to the terms of the contract. These types of contracts allow for original transactions without the involvement of third parties and are in fact computer protocols designed to facilitate negotiation, verification, or digital execution.


The best thing about not having a broker is the fact that we save a lot of money, not only that, but we no longer need to trust anyone.

There is also a potential downside: people may lose their jobs like, lawyer, broker, bank etc.

The broker is a real person, just like you and me, why would anyone pay an employee to do something they can do for free with a smart contract? of course no.

Of course, no one knows what the future holds for them, all we can do is guess and predict, but we must be prepared for all possible outcomes.

So, you see, smart contracts can make the world a better place without fees.

This can reduce fraud, delays and overall cost in many cases.

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However, as technology advances further, we are eliminating the need for specific occupations.

Now that you have read this guide, you should be able to answer the golden question, “ What is a smart contract? ”. 

I hope that everyone will benefit from this article, and if there is a question or inquiry, please leave a comment below and we will respond as soon as possible.

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