What are Smart Contracts?

Arrangements between two parties will typically be formalized with a written contract. Whether it be two individuals or businesses, a contract ensures a documented account of a two party agreement. However, the traditional contract is fraught with problems. Validating and approving contract terms is vastly time-consuming with complicated jargon, and a volume of information. Furthermore, the execution of a contract typically needs human intervention and potentially even a third-party cost. A contract with complicated terms needs a high degree of control and runs the risk of disputes in the future.

Smart contracts aim to solve the problems associated with a traditional contract. The technology can translate the written agreement into digital or computational code, mitigating ambiguity, and any variation in how the contract is interpreted. 


What is a smart contract, and how does it work?

Just like a written contract, a smart contract is a form of agreement between two parties. Instead of being physically written and documented, it sits on top of a blockchain, stored in the public domain, where it is immutable.

 Transactions involving the smart contract will all be processed on the blockchain. The blockchain can be triggered automatically, without requiring third-party verification. Once a condition in the contract is met, the transaction will process to negate any barriers surrounding trust.


A smart contract is one of the most popular applications of blockchain technology.
Imagine having several documents on your computer that contain transactions. There are then two accountants, both of which have the same file on each of their computers. If a new transaction occurs, both accountants will get an email to inform them of the details. They will check the email and transaction, then respond to it as a means of verification. If you can afford to complete the transaction, the accountants will complete it, and the file will be updated.


A good analogy is to compare a smart contract to a vending machine. For example, if you insert a dollar into the machine,  it  will grant you candy, or said item you’ve chosen. There isn’t somebody standing there telling you how to operate the machine or to ensure a successful transaction. However, if you put less than one dollar in the machine or press the wrong button, you won’t get the item you’ve selected. Instead both actions must be done correctly to ensure a completed process. In the context of smart contracts, this is how you fulfill an agreement. 


Smart contracts and blockchain technology

A smart contract works hand in hand with blockchain technology. Blockchain serves the functions of immutability, permanence, and security. These functions are essential for smart contracts.

The Ethereum platform is another well-known example that develops smart contracts using blockchain technology (we will discuss this briefly later).  

Binding agreements

Parties can bind themselves using a smart contract after it is set up as a digital deal. When an agreement is reached on the terms, it will be pushed to the blockchain. Once it is a part of the blockchain, it is not possible to edit or delete the transaction, as a network of computers secures it.

Transaction automation

There will be services that a business pays for every month. A smart contract can define the monthly amount and formalize a self-executing agreement. For example, once the work is completed and verified, one party automatically sends payment to the other. Asset transfer is always done in a timely and secure manner.


Businesses will spend a great deal of time reconciling and chasing orders. A smart contract can contain triggers that are put into practice if a party does not deliver on a promise. For example, if goods are expected to be delivered the next day, but they are not received for one week, a term could be triggered that says no payment is due because requirements have not been met.

Removing the middle man

No intermediaries are required with smart contracts. Banks, solicitors, and estate agents are typical middlemen in a transaction. The trustworthy and secure nature of blockchain makes it ideal for peer-to-peer transactions. For example, a property exchange could go ahead with just a buyer and seller without requiring an agent or solicitor.


Developing smart contracts

Several online guides exist that help you get started with smart contract development. The process requires business analysts, developers, testers, and end-users. There are many blockchain platforms for smart contracts such as like Ethereum and NEO, which use their own coding languages.

With Ethereum, a smart contract is a block of code. The value of the contract is quantified through the Ether cryptocurrency. Two concepts are critical to learning if you want to develop a smart contract yourself.


  • Ethereum Virtual Machine (EVM)

EVM is a runtime environment that is an entirely decentralized computer running all smart contracts. The programming language is Solidity, which is based on javascript, C++, and Python.

  • Gas

Ether miners must be paid to put a contract on the Ethereum blockchain. The payment is called gas, and the more complex your contract gets, the more gas it requires.

A smart contract is programmed on EVM, and you will pay gas to execute it.

There are also various toolkits required to build a smart contract, such as Truffle, Node.js, Parity, Code editor, Ethereum wallet, and browser.

We won’t go into massive technical detail in this post, but the key takeaway is that there is a programming requirement for smart contracts, and you need to decide whether to outsource development or use resources in-house.


Smart contract use cases

Smart contract applications are popping up in various industry verticals. Real estate is one we have already discussed but below are three other significant innovations.


In healthcare, the secure transfer of patient data is a longstanding problem. Technology companies such as EncrypGen can build smart contracts that transfer patient data securely, without the risk of third parties gaining access. A patient can be assured that they are in control of their data without it getting into the hands of a research company unless they provide due permission.


Voting systems are traditionally quite ambiguous. Blockchain can offer a system with greater transparency that guarantees the authenticity of results. Follow My Vote is a secure blockchain-enabled voting platform, where a token is sent to an address where it cannot be changed. The blockchain technology will automatically verify the counts.


The insurance industry relies on legacy systems and is typically very complex and document-heavy. A smart contract can help streamline insurance processes, such as claims. Imagine you take out travel insurance, and your flight is either cancelled or delayed. Sometimes, it can take weeks or months for the underwriter to pay out the claim. However, a term within a smart contract could be set to self-execute in the event of a flight delay. For example, an agreement might be in place whereby the policyholder automatically receives $50 after a one-hour flight delay. All insurance verticals could be set up in a similar way to avoid unnecessary paperwork and lengthy claims processes.

Disadvantages of smart contracts

While there are several benefits to deploying smart contracts, just like any technology yet to reach full maturity, there are factors that can be considered as disadvantages.

First, there isn’t much regulation around how smart contracts work at this point. More governance will come in time, but early adopters need to be careful when investing in the technology. There is also still a high dependency on programmers to build smart contracts and work out any bugs. Where blockchain technology is immutable, there may be a lack of flexibility in amending contracts when required. For example, there may be constant addendums that need to be applied to the blockchain terms.



Smart contracts offer enhanced security and trust between two parties. The innovative tool serves to speed up laborious processes, cut the middleman, and overall seek to benefit the broader economy in a more efficient way.

Disclaimer:  The author of this text, Jean Chalopin, is a global business leader with a background encompassing banking, biotech and entertainment.  Mr. Chalopin is Chairman of Deltec International Group,

The co-author of this text, Robin Trehan, has a bachelor’s degree in economics, a master’s in international business and finance, and an MBA in electronic business.  Mr. Trehan is a Senior VP at Deltec International Group,

The views, thoughts, and opinions expressed in this text are solely the views of the authors, and do not necessarily reflect those of Deltec International Group, its subsidiaries, and/or its employees.