Smart Contract Explained for Non-techies

Let’s say you are a businessman looking for other options to create a legal agreement. Perhaps you are a buyer who feels more assured in purchasing when the transaction is backed by blockchain technology using cryptocurrency.

Maybe you heard the term Smart Contract and curiosity got the best of you. Whichever category you fall into, understanding the concept of a Smart Contract will help you understand its benefits and why people use it on the web.

Hearing the terms Blockchain Technology, Cryptocurrency, or Smart Contract may seem intimidating, especially for those who aren’t familiar with how these concepts work. But if you are looking to expand your knowledge of the digital world, it is not as complicated as you might think.

Table Of Contents:

What Is a Smart Contract?

A Smart Contract is like a digital agreement between two parties to exchange assets such as money, property, documents, etc. Unlike your traditional legal contract, there is no need for a third party (e.g. a lawyer), or a middleman to make the transaction faster and less complicated.

This idea was first presented by Nick Szabo back in 1994 when he authored an article titled, “A smart contract is a computerized transaction protocol that executes the terms of a contract.” (Szabo, 1994).

You can think of smart contracts as similar to the code your bank uses to pay interest for having funds deposited in a savings account.

Instead of having a bank between you and your money, you can connect your wallet to a DeFi website, deposit funds, and start receiving “interest” in your wallet.

In a nutshell, smart contracts determine what should happen to someone’s cryptocurrency tokens when they’re sent into (or removed from) a protocol.

Another great thing about Smart Contracts is that not only do they create your agreement for you, they also enforce it and make sure that both parties meet the terms. It’s like a program connected to the blockchain that executes an “if-then” premise dictated by the terms of your agreement—making it safer, less time-consuming, and much less prone to errors and misunderstandings.

The Role of Blockchain Technology

The Role of Blockchain Technology

Now, this is where blockchain technology comes in. The concept of blockchain technology in a Smart Contract is like a folder where you store your files.

But unlike a traditional file, this is much safer, transparent, and done digitally, as it is handled  by code and uploaded to many computers, avoiding scenarios you often encounter with paper, like losing the file or tampering.

Your contract is stored on computers, and actions will occur once the predetermined term or outcome has been reached. The entire history of activities is also seen by the parties involved in the agreement.

It’s like having an assistant doing the work for you. Imagine you are selling a vehicle, and based on your Smart Contract, the key would only be released once the amount is paid in full. But it is also in your terms that the vehicles has to be registered before getting paid. Now your assistant would collect the key from you and keep it in a safe box.

Once the buyer deposits the money, your assistant would keep it in a secure box as well. The moment you register the vehicle, and all the terms are met, your assistant releases the key to the buyer and the payment to you simultaneously.

The Smart Contract protects your asset by ensuring that your terms are accurately followed. At the same time, it protects the second party by ensuring the legitimacy of your asset. It keeps the agreement transparent and accessible for both parties involved in the transaction.

The idea of using the traditional blockchain as computer code to communicate with one another, such as in a Smart Contract, was proposed by Vitalik Buterin, a Canadian-Russian programmer back in 2013. He is one of the founders of the Ethereum Project. Ethereum is the leading blockchain when it comes to Smart Contracts.

Why Go for a Smart Contract?

Why Go for a Smart Contract?

You might still have some reservations about transitioning from a traditional contract to a smart one. Here are some of the benefits you can look into:

Saves Time and Money

A traditional way of creating an agreement is to go through a lawyer and other professionals to complete the process. This process takes days, not to mention professional fees.

As mentioned earlier, a Smart Contract does not require the presence of a middleman. You can avoid paying people extra money to process paperwork and other external factors by doing everything digitally.

Safe and Trustworthy

The transparency of Smart Contracts and blockchain technology makes it almost impossible to be scammed in transactions.

It is the perfect platform to use when dealing with strangers you don’t trust. Terms are predetermined, enforced automatically, and information and actions are encrypted on a shared ledger. Thus avoiding human errors made in transactions.


Now that you have a better understanding of Smart Contracts, using one for future transactions should not seem as scary as before.

Smart Contracts are already becoming more popular, not just in businesses but also in day-to-day transactions.

Though the  Smart Contract system still has its flaws, rest assured that experts and the brightest minds in technology are dedicated to its development, ensuring that we’ll see more it at work.

By Ananda

Ananda offers a simple and easy way for you to buy Bitcoin and over 65 other cryptocurrencies. You can get started with as little as $10, and our process is simple and straightforward.

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