Are you a cryptocurrency enthusiast who wants to know more about smart contracts? If so, you're like millions of other alt-coin aficionados who feel they need a better grasp of what smart contracts are and why they're such an integral part of the entire digital money scene. Unfortunately, there are myths floating around about what these new kinds of contracts are, how they work, and whether they beneficial for the economy or detrimental to it. 

However, nearly all the evidence points to smart contracts being a very positive turning point in the evolution of the financial markets and in several other areas of international and domestic commerce. The most useful way of understanding smart contracts is to review a simple definition of the term, examine the main benefits, find out who uses them most often, and why they have become so widespread in multiple fields of endeavor, not just for cryptos. Here are the essential points to keep in mind.

What is a Smart Contract?

Crypto trading had proliferated and is now possible via crypto exchanges such as Binance, or online brokers like easyMarkets that provide price trading of cryptos against the US dollar. Those who enjoy trading cryptocurrencies can get so caught up in the price action that they forget about one of the unique aspects of cryptos. A large part of the IT that makes up the blockchain and supports the entire cryptocurrency universe is based on smart contracts. What are smart contracts? The best way to think of them is as if they are traditional contracts but without a hard-copy verification or paper that proves their existence. 

Instead, they reside on the cyber blockchain, on a group of computer nodes instead of on a piece of paper or a hard document. In fact, a smart contract is really a virtual program that is part of a blockchain's total storage capacity. What does the contract do? It acts to allow negotiation or to enforce specific performance between two or more parties to a transaction. In general, the code is written in such a way that the contract automatically takes effect once a certain number of agreed upon conditions have been met.

The Main Advantages

People who use this new kind of contractual agreement are motivated to do so by several benefits. The first is transparency. All parties to an agreement know exactly what it contains, who's getting what, and the conditions that are needed for the agreement to be fulfilled. Because the entire process is 100 percent automated, there's no need for go-betweens like banks, governments, or brokers. Plus, there's a high confidentiality factor because only the involved parties are able to access the virtual document and its data. In addition to complete automation of the process, the deal carries a lower price due to the lack of intermediaries and the accompanying fees.


While documentation and other advantages make smart contracts a favorite among many businesses and governments, there is not much of an enforcement feature built into the agreements. In other words, official legal regulations pertaining to smart contracts are weak at best. Additionally, users sometimes complain of slow processing time, the potential for programming vulnerabilities, and an undue reliance on IT professionals to create and monitor effective smart contracts. Even so, these new ways of transacting business are one of the shining stars of the digital world and are gaining widespread acceptance by many traditional financial institutions.