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Smart Contracts on Blockchain and How it work?

2 Mins read

What are Smart Contracts?

The easiest explanation is: Smart Contracts are simply a few lines of code instructed to run a set of commands according to agreed conditions between two parties. Instead of being physical contracts, they are digital and live in the Blockchain

But why do we need Smart contracts?

  1. To build trust,
  2. Save money and
  3. Speed up processes

Let’s see the following e.g. Imagine Chelsea will play against Liverpool for the English FA Cup Final @wembley stadium. “Damn, what a game. I’ll bet on Chelsea to win”

Chelsea was given 10:00 odds to win, considering the odds you jump into your bets website account or bet agent shop, and bet $10 against Liverpool. If Liverpool wins, you lose the money. If Chelsea wins, you’ll make $100 right?

But, have you seen what happened behind the scenes?

Behind the scenes of transactions.

What happened was that you relied on the Bookmaker (Bet site/shop) to be the trustee of your money. The moment you click “Place Bet”, your money is transferred from your account to the Bookmaker’s account until the end of the game. Is there a problem with this? Yes. But why is this problem?

The problem

  1. We have to trust the Bookmaker to keep our money while the game is running, and to pay us according to the final result
  2. At times Payment takes 1-3 days and most of the time we cannot get the money directly into our accounts
  3. Betting has costs

Understanding the problem

“Is this Bookmaker trustworthy? Why wait 1-3 days to withdraw my money?”

The Traditional solution:

You’ll have to rely on the Bookmaker’s reputation and use flutterwave or whatever means available to withdraw your money.

But, reputation? Hmm, is that really enough? I remember the 2008 financial crisis

Trusting our money to someone based on reputation became harder after the 2008 crisis.

Now I know you’re asking questions like;

“How can I trust my money to someone and be sure I’ll get it back? – Not trust based on reputation.

What’s the cost?

How fast will I get it back?”

This is where Smart Contracts come in

How smart contracts work

The Blockchain solution

Smart Contracts were created to mediate an agreement between parties.


By being a few lines of code that enforce the agreement automatically whenever the conditions are met.

But is it all about bets? Not at all, that scenario is just one of the many cases where smart contracts can apply.

“So what can we do with Smart Contracts other than placing bets?”

  1. Voting
  2. Trading stocks
  3. Buying insurance
  4. Buying a new house
  5. Act as a trustworthy escrow
  6. Enforcing contracts between suppliers


Smart Contracts are a few lines of code that run automatically whenever the conditions of an agreement are met. It’s cheaper and faster than conventional solutions like Escrow, notaries, banks, lawyers, etc.

As it works on top of the Blockchain technology that never sleeps and it is also completely digital and decentralized.

Why is this nice?

Mainly because nobody will be able to change the initial agreement. You won’t suffer from contract tampering again.


Sources and further readings:

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