Benefits of Smart Contracts & Use Cases

Benefits of Smart Contracts & Use Cases

According to statistics, in recent years, blockchain and decentralized applications in business have increased significantly in different industries. Initially, any blockchain protocol was created to ensure the stable functioning of the cryptocurrency. But currently, the scope of blockchain protocols is significantly expanded.

It is not a secret that to succeed in today’s business realities, it is necessary to understand the peculiarities of Dapps vs. Smart Contracts and the principles of the technology as a whole. In addition, any blockchain platform or smart contract can become the basis for the next global World Wide Web iteration (Web3.0).

What is Smart Contract?

The concept of a smart contract is widely used but not always correct. It is a program code written in a unique language and stored in the blockchain network. The main characteristic of a smart contract is its obligatory execution under predetermined conditions.

The advantage of a smart contract is that it essentially automates the processes of an agreement at all levels or triggers a specific action upon completion of the previous one. At the same time, smart contract eliminates errors that are associated with human intervention.

With the help of smart contracts, anonymous parties can carry out transactions and agreements without outsiders and third-party intermediaries. It differs from the traditional contract, where a financial or legal institution can act as a regulator. It reduces the cost of additional (like in the case of paper contracts) and transaction fees and, thus, faster confirmation of the agreement.

Smart Contracts Pros & Cons

To understand the reasons for such widespread adoption of smart contracts, you should understand their main features, which make them differ from traditional contracts. At this stage of development, digital contracts are not a 100% solution to all problems. However, in the future, this blockchain technology will continue to develop and replace traditional contracts.


  1. Safety. Smart contracts use the highest level of data encryption you can find on the market. It can be seen in the example of the Bitcoin blockchain. It is the leading technology that uses advanced techniques to safely store important blockchains.
  2. Efficiency. Unlike paper-based systems, the use of smart contracts is more efficient. Also, the time you need to execute blockchain-based smart contracts is significantly reduced. As a result, you can trade finance or transfer money, experiencing lower execution risk.
  3. Trust and transparency. All parties involved in the contract can check its status at any time. While using smart contracts, you cannot unilaterally change the terms. Otherwise, they will not be fulfilled.
  4. Saving. The use of blockchain technology eliminates the need to involve third-party participants who would verify and confirm agreement. As a result, you not only reduce costs that go to pay for the services of financial and legal institutions.
  5. Accuracy. Because third-party involvement cannot impact the performance of the contract, you can not worry about the accuracy of the information, clerical errors, and so on.
  6. Guaranteed results. It, perhaps, is one of the top features of smart contracts, which virtually eliminates the need for litigation and the involvement of lawyers. The fact is that to fulfill a smart contract, both parties undertake to follow the rules and definitions of the base contract code. As a result, you do not need to interpret data as it may happen in paper-based contracts.


Despite all the positive aspects of smart contracts, there are also negative aspects that must be considered.

  1. Lack of opportunity to bring changes. Unlike a written contract, changing or terminating a blockchain agreement is much more complex and sometimes impossible. This disadvantage is related to the very functioning of the blockchain and can potentially lead to higher transaction costs. If you use a text-based contract, you can quickly draw up amendments (for example, if legislation changes or force majeure events occur).
  2. Multiple hack protections. Though smart contracts are fairly safe, they can not provide 100% security. If one of the parties to a smart contract, you have a limited arsenal of means you can use in case of violation of the terms of the contract.
  3. Restrictions on negotiations. The fact that smart contracts are executed automatically can lead to poor communication between the parties. For example, a situation may arise in which one of the parties considers a more ambiguous interpretation of a condition to be much more beneficial. Smart contracts do not allow such ambiguity and require precise parameters.
  4. External Data. It is one of the technical problems that users of smart contracts may face. Sometimes there are situations where it is necessary to implement provisions that require the smart contract to receive information from sources outside the network (outside the blockchain).
  5. For example, according to the insurance terms, one of the parties undertakes to transfer funds to the insured person in case of a decrease in critical indicators. It can be temperature conditions, humidity, and so on. The system must connect to an external source to receive such changing data, which is impossible when using blockchain technology.
  6. At the same time, there is a relatively effective solution to this problem when reliable third-party sources enter data into the blockchain at a well-defined time. They are also called oracles.

Are Smart Contracts Secure?

Of course, smart contracts can not guarantee 100% protection. However, this is the most secure solution at present. There are three main aspects on which the security of a smart contract depends:

  • Planning,
  • Design;
  • Development.

To ensure the proper level of security, it is necessary to regularly audit the blockchain and revise the code. To do this, you should involve reputable external services and conduct an internal audit (subject to the availability of technical capabilities and competent personnel).

Examples of Smart Contracts Use Cases

So, you can find blockchain in the entertainment industry, the financial sector, multiple healthcare services, insurance, and much more. Here is the list of the most prominent examples of using smart contracts work in various industries and businesses.

  1. Datahash. This company provides logistics and delivery of agricultural products in Australia. In its work, the company actively uses the Hedera Consensus Service to track the relevance of data.
  2. Dropp. This service helps to make micropayments that customers make not only in cryptocurrency but also in fiat money. With the help of smart contracts, sellers can save money and direct it to business development. Consumers, in turn, have quick and convenient access to all kinds of products and services.
  3. AllianceBlock. This company creates protocols that help unite decentralized and conventional financial applications. The company actively uses the same Hedera Consensus Service to quickly and efficiently validate agreements.
  4. Tune.FM. It is a relatively new project that many beginner musicians actively use. With it, you can set up automatic royalty payments with detailed percentages, conditions, and so on. Within the system, artists can also independently produce NFTs for exclusive content and sell them to fans using JAM tokens.


What are the advantages and disadvantages of smart contracts?

As for advantages, you should notice the automatic smart contracts work and reduced cost of business processes. Also, they are fully visible, come with guaranteed outcomes, and depend on fewer intermediaries. At the same time, they can be rigid in terms of bringing changes and using information from off-chain resources.

Are smart contracts more efficient?

Yes, because compared to paper-based contracts, they use a unique computer code that automates processes and provides reduced dependence on third parties. Plus, they help maintain consensus using predetermined terms.

What problems do smart contracts solve?

With their help, you can avoid ambiguity in terms of the transaction and also speed up its implementation at lower costs. Also, smart contracts are straight and clear: unlike ordinary paper-based contracts, both parties have complete data regarding the conditions and stages of operations. In addition, smart contracts are more convenient to check during the audit.