Smart Contracts – What Are the Essential Variables That You Can Consider?

May 11, 2022 by No Comments

Understanding the variables of smart contracts is critical to your business. It is because they utilize blockchain technology in various ways. 

Smart contracts have various functionalities, and it is vital to know how to make the right choice for your company.

This article will help you get exposed to different types of smart contracts, their advantages, disadvantages, and other factors. These factors may only be relevant to a particular individual or business.

What Are Smart Contracts?

Smart contracts are self-executing computer programs that get written to a blockchain, a shared ledger. Each contract, stored on a decentralized network, typically lacks human intervention. 

These contracts can get programmed to perform many things. It can include the transfer of money, property rights, copyrights, content licenses, and invoices.

You can understand some fundamental variables that you can consider before getting into smart contracts.

3 Main Characteristics of Smart Contracts

The basic idea behind smart contracts is that they help carry out the terms of a contract automatically via lines of code. The three main characteristics of smart contracts are:

  • Self-executing: Once you agree to smart contract terms, it will get carried out without any human intervention. It makes it a handy tool for cryptocurrency exchanges. Most exchanges like OKX (brand) make wide use of smart contracts.
  • Self-verifying: There’s no third party needed to verify or authenticate a transaction like in traditional contracts. The information gets stored on the blockchain and is publicly available.
  • Self-enforcing: Once certain conditions get met, the contract executes itself without any further intervention on your part or anyone else’s.

Benefits of Smart Contracts

Smart Contracts have several benefits, but the three most important ones are security, accuracy, and automation.

Security – Smart contracts are secure because they get stored on a distributed ledger (a blockchain). It is resistant to any form of data modification or hacking. When a contract gets deployed on a blockchain, the original contract and all subsequent versions get stored in that ledger for as long as the specific chain is operational. 

Both parties to a smart contract have access to this information and can easily verify all updates are the basis of the mutually agreed-upon methods.

Accuracy: By using cryptographic code with self-executing functions, smart contracts ensure that they get automatically executed when certain conditions are available. Thus, eliminating the risk of human error. 

It also means that you can trust smart contracts to accurately carry out routine tasks without any extra manual input from you or your employees. It can save you thousands of dollars every year!

Automation: With their ability to automate contractual obligations in response to triggering events, there is no need for someone to manually manage every step involved. It is true during every instance where one party needs another’s service before completing theirs. Everything happens automatically!

Drawbacks of Smart Contract

But every coin has two sides. Smart contracts are not without drawbacks. Let’s look at some of the big ones:

It is not legally binding. Since there is no governing body or regulating authority, the contract may not be enforceable by law. We have discussed that the functionalities are predetermined, and the execution of the contract cannot get altered once deployed on a blockchain network. 

It would, in turn, make it impossible for the parties involved to amend or modify the terms of the agreement if there is a change in regulation or if any clause becomes invalid with time.

There is no regulatory mechanism currently available for smart contracts, and it creates room for uncertainty and ambiguity. The risk factors previously taken care of using traditional contractual agreements had legal backing and support from governing authorities. It had various concerned departments with different domains like finance, healthcare, etc.

There is no standardization available for smart contracts. Thus, making it difficult to interpret diverse transactions carried out over different platforms based on different programming languages used to write them.

Disputed transactions over the blockchain are irreversible. Thus, making it difficult to resolve any discrepancy between parties involved during contract execution. The lack of transparency and trust between transacting entities over public ledger systems is the cause where data confidentiality and privacy remain an issue.

A smart contract cannot get canceled or reversed once deployed on a blockchain network. It’s imperative for programmers/developers to ensure that code written gets tested rigorously before deployment. Or else, they will remain prone to bugs, which can lead to loss of funds held up in escrow by smart contract due to re-entry bug-like DAO hack.

What Can You Seek From Smart Contracts?

Smart contracts are agreements that are verified, facilitated, and enforced by a distributed ledger technology. Smart contracts can help automate the execution of transactions in connection with almost any kind of transaction. 

A Blockchain network is a decentralized database that works via a peer-to-peer network (a group of computers connected through the Internet). It gets managed autonomously by all members of the network. It enables everyone to see the information stored in it. 

A smart contract is nothing more than a computer program built upon a blockchain platform, which runs on nodes (computers) belonging to this network. In this way, we can ensure that:

  • The contract cannot get changed without all parties knowing about it.
  • There is no central authority in charge of executing it
  • Each node has its copy of the agreement.
  • The contract will only execute if certain conditions are available.


There are many essential variables to consider when determining what you need to consider as you create smart contracts. Don’t rush into creating a smart contract without first taking the time to consider all of your options and what you want this contract for. 

Consider who will be involved in the contract, when the contract will end, and what could go wrong with this contract. Once you have answers to these questions, you can focus on creating a smart contact with ease and confidence.

The best part about using a smart contract is that it can easily get customized for any agreement that you have in mind. You are responsible for choosing who will get involved in the agreement.

Leave a Comment