Smart Contracts - what are they?

Smart contracts are certain digital algorithms that are used to confirm the authenticity and compliance with the terms of a transaction in a blockchain system. Each contract code specifies clear conditions under which the expected result is achieved. The automated process eliminates the need for intermediaries to participate in transactions.

Smart contracts are not legally enforceable. However, when using this technology, achieving high transaction reliability and transparency of all conditions in decentralized networks is possible.

Main types and applications

Smart contracts are used in cryptocurrency systems to speed up transferring funds between different addresses (they are called payment Smart Contracts). In addition, depending on the purpose, Smart Contracts are distinguished into the following types:

  • escrow - it is in a smart contract that the assets used by the parties to the transaction are held until the obligations of each party are fulfilled;
  • controls - designed for making decisions in decentralized blockchains or DAOs;
  • Multi-signature contracts are used when confirmation from several persons is required to complete a transaction.

Smart contracts are classified as either fully or partially confidential, depending on the degree of anonymity. There are also completely open ones used mainly in centralized networks.


The use of Smart Contracts can significantly increase the security of any deals and transactions. In this case, there is absolutely no need to involve an intermediary who monitors compliance with each party's terms of the agreement.

Considering the technical specifics of the implementation of the Smart Contracts algorithm, it provides the following advantages:

  • the impossibility of falsifying data since changing an entry in the decentralized blockchain registry after its registration is not available;
  • automation of routine processes;
  • high reliability and security of each transaction;
  • efficiency of implementation of any transactions;
  • reduction in transaction costs.

The disadvantage of Smart Contracts technology is one of the advantages - the inability to change data after registering on the network. For this reason, if a smart contract is implemented with an error, it can no longer be corrected.