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Ethereum Smart Contracts explained: All you need to know!

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Ethereum Smart Contracts explained: All you need to know!

Have you asked yourself “What are Smart Contracts and how to they work? Then you’ve come to the right place, because with our article “Ethereum Smart Contracts explained”, you will learn everything you need to know about it. Smart Contrats are the hearth and soul of Blockchain. With them, we can close transactions and contracts more easily and securely.

But what makes Ethereum Smart Contracts so awesome? And what is the difference to a normal contract? In the following, we will answer these questions.

“Ethereum Smart Contracts explained: All you need to know!” – Content:

Ethereum Smart Contracts explained

  1. Ethereum Smart Contracts explained
  2. Ethereum Smart Contraccts Example
  3. How does a Blockchain Smart Contract work?
  4. How are Smart Contracts executed?
  5. Smart Contract Use Cases
  6. Advantages of Smart Contracts
  7. Disadvantages of Smart Contracts
  8. Why should you trust a Smart Contract?
  9. “Ethereum Smart Contracts Explained” Summarized

Ethereum Smart Contracts explained

A Smart Contract is a digital contract that is executed by the Blockchain. It only consists of a few lines of code. These are structured like if-conditions. With a Smart Conctract you can send money, license, shares, data and many other things. You don’t need any third party to make sure that the contract is fulfilled. The Blockchain takes care of this completely automated.

Nodes execute our Smart Contract. Therefore all nodes have to receive the same results. They also document everything. And because a Smart Contract is on the blockchain, you can not change it.

You can easily compare a Smart Contract with a candy machine. You throw a coin into the machine and you automatically get the selected item. This is exactly how Smart Contract works. You send a coin into the ledger and get a license, data or something else back.

Ethereum Smart Contracts Example

A Blockchain smart contract is like a normal contract such as your mobile phone contract. But it’s digital and only consists of a few lines of code in the blockchain.

Ethereum Smart Contracts explained

Partners can interact with a smart contract. The blockchain executes the code and documents the transactions. Now, let’s explain it with a simple example:

Surely you are already familiar with Kickstarter. It is a large platform for crowdfunding. Companies can go there and create a project. You can set a funding target to collect money from other people. Kickstarter is a third party sitting between the production team and the sponsors. Thus, both sides must trust them to handle their money mindful. So if the project reaches the minimum sum, they transfer the money. But if they don’t reach the goal, each one gets their money back.

As you can see, we always need a third party as a trusted instance. So smart contracts allow you to collect funds without a central instance. Thus, this makes the whole process safer and more efficient. It also makes sure that the money gets into the right hands. Now let’s create a smart contract:

The companies, in our case a production team, creates a campaign with a smart contract. Therefore, it defines the input for the funding target as well as the period of the project. Users can become sponsors by sending their money to the smart contract. He manages and verifies the money as follows:

  • If the amount is higher than the minimum value, you are a sponsor in the smart contract.
  • If the amount is lower, it is discarded and the user gets his money back.

How does a Blockchain Smart Contract work?

Blockchain users can create transactions that send data to a Smart Contract. It then executes the appropriate function with the data provided by the user. After that, it can provide a certain service. And because the code in the blockchain is tamper-proof, you can use it as a trusted third party.

So, in our example, who checks now if the sponsors really get their promised services? Is the money really used for the actual product? The sponsors must trust the production team. It often happens that nobody gets the product, or they don’t even produce them.

With an Ethereum smart contracts, we now have the chance to control it. Therefore, the production team can create the desired output. It defines the price, product, quantity and even suppliers. As a result, the lenders can vote once for their favorite product. They decide whether the purchase makes sense or not.

If the product reaches an approval above 50%, the supplier gets the money and the order is placed. Thus, the owner always has control over his money and a violation of trust is impossible.

That is impressive when you consider that everything is realized only with the help of a few lines of code. And because Blockchain smart contracts are on top of the blockchain, the contracts are decentralized. Now this means that no central party is necessary, and we have no additional costs. Thus, this allows companies to optimize processes and save money.

How are Smart Contracts executed?

Smart Contracts are on the blockchain. They are executed by nodes. The digital contract is treated as a transaction. It has a certain target function, conditions, and a digital ID of the sender.

Smart Contract Use Cases

Smart Contracts enable us to conclude contracts in a new way. We show you what you can use Smart Contracts for.

Supply Chain

Many large companies have a long supply chain. When a product is delivered, many companies are included. To ensure that everything is secure, you have to document everything. That creates a lot of paperwork. As a result, processes are inefficient and result in high costs.

With Smart Contracts, we can completely automate the transfer of products. This allows companies to reduce paperwork by up to 90%. As a result, deliveries are significantly faster and cheaper.

Business Operations

In a company, there are many processes that require approval or a signature. These ensure a constant back and forth. In addition, you always have to wait until there is an answer. That makes for slow processes.

With Smart Contracts, we can handle these approvals automatically. When you have fulfilled all conditions, the application is approved immediately. This can make everything much faster and reduces the waiting time.


Elections must be very safe so that no one can cheat. With Smart Contracts, we can process an election digitally. In addition, nobody can change the contract afterward, which provides the necessary security.


If you want to charge your e-car, you have to go to a charging station. However, there are many individual providers for this. Therefore the payment can often be very complex. With Smart Contracts, we can simplify these processes and use tokens to record the amount charged.

Real estate

If you’re buying a house, the process can take a long time. You have to check a lot of things and a notary has to notarize the contract. With Smart Contracts, we can simplify this buying process. As a result, everything is faster and you save money.

Blockchain Smart Contracts Advantages

The advantages of digital contracts are as follows:

Security: Since a Smart Contract is on a blockchain, it is cryptographically secure. This means that nobody can simply change something unknowingly.

Trust: This tamper protection also ensures that we can trust the digital contract.

Efficiency: We no longer need a third party to check compliance with the contracts. We can now process contracts completely automatically. This can increases efficiency and reduces costs.

Reduce costs: Of course, more efficient processes can also cut costs. This keeps more money in our pocket.

Accuracy: Smart Contracts are not only more efficient and cheaper but also more accurate. There are no more mistakes when filling them out.

Blockchain Smart Contracts Disadvantages

Smart Contracts have many advantages, but they are not perfect. It can happen that there is an error in the code. This ensures that it is not executed correctly.
It can also happen that you write the wrong code. This will result in you being bound by a faulty contract.
You cannot change anything afterward. This is especially important if your situation changes.

Why should you trust Blockchain Smart Contracts?

Humans programmed them and can, therefore, abuse your trust. So to answer this question, we need to take a closer look at the characteristics of a blockchain:

Since smart contracts are on a blockchain, they get some interesting features. As a result, they are unchangeable. This means when you create them, nobody can change it. Thus, nobody can manipulate a smart contract behind your back and change the code. On the other hand, they run on a distributed platform. Thus, everyone owns a copy of the contract and reviews it.

Ethereum Smart Contracts explained

So if someone intends to manipulate your contract each person on the network will discover and report the scam attempt. The manipulation of a smart contract is therefore virtually impossible.

“Ethereum Smart Contracts Explained” – Summarized:

  • A smart contract is a digital contract.
  • It consists of a few lines of programming code.
  • So more control for both parties.
  • Therefore, no central trust party.
  • You can’t change a smart contract.
  • it creates more security for all.

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This Post Has 2 Comments

  1. Hey there! This is my 1st comment here so I just wanted
    to give a quick shout out and say I genuinely enjoy reading your articles.

    Can you recommend any other blogs/websites/forums that deal with the same
    topics? Thank you!

  2. Bos

    It is completely incomprehensible for me how a “smart contract” can facilitate something like a house sale. Who are checking all the 100s of things that it involves??

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