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What is the Smart Contract? Will the computer code replace the law in the future?

What is the Smart Contract? Will the computer code replace the law in the future?

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The Bitcoin network is the first application of the Blockchain technology. When Bitcoin became famous, people started to consider how to apply the Blockchain technology in different areas, not only as a decentralized financial system.

Smart contract is an innovative function introduced by Ethereum, a second-generation protocol that crosses blockchain with the ability to deploy simple on-chain programs. Where Bitcoin allows for the peer-to-peer transfer of value, Ethereum enables this to be performed autonomously.

We are going to introduce the potential benefit in the smart contract. Don’t miss this key information as a crypto investor.

What is the Smart Contract?

Imagine you were a player of a famous online game. One day, the game administrator made some editions and the character you love was banned. Your complaint was ignored by the game company and you lost your character forever.

Then you realize that the game company acts as the center that can control everything in the game. On the other hand, you have no say in it even if you have invested a lot of time and money in the game. You can do nothing to protect your digital assets.

That’s the real experience of the founder of Ethereum, Vitalik Buterin. In order to protect the rights of both sides, we may sign a contract to establish the terms of the agreement. But unlike the traditional contract in the real world, a smart contract is actually a computer program established on the Ethereum Blockchain.

If someone violates the contracts, you have to spend a huge legal cost to ask for compensation, including both time and money. But with the smart contract, the agreement will be executed by the programs on the Blockchain.

The key features of the Blockchain are transparent and immutable. It offers security, reliability, and unlimited accessibility. No one can interrupt the execution of the smart contract. As a result, the cost of discredibility is avoided. We can carry out any kind of online transaction safely with strangers with the help of smart contracts, no matter how complicated it is.

How do they work?

A smart contract is an automated program on the Blockchain. When the criteria set up in the smart contract are fulfilled, the programs will execute the offered tasks.

Similar to the programming of the computer, smart contracts can be created in programming languages including Solidity, Web Assembly, and Michelson.

The code of every smart contract is stored on the Blockchain and completely transparent and everyone can access it. So that both parties can review the terms and rely on it.

In order to execute a smart contract on Ethereum, you have to pay the “gas” fee. When the payment is settled, the code is executed by thousands of nodes around the globe. The nodes providing hardware and electricity power will receive ETH (the cryptocurrency) as a reward.

No matter the government, both sides of signing up the smart contract or everyone else is not able to change the order or the agreement in the smart contract once the programs are established on the Blockchain.

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Key features and advantages of smart contracts

The smart contract has the following key features so that it is more reliable:

Smart Contract

Traditional Contract


A smart contract is a peer-to-peer system that can be set up without any intermediates. You have to pay the gas fee depending on the complexity of the contract.

Advantages: You may carry out trustless transactions without paying the transaction fee and time cost for the execution carried out by an intermediate.

A traditional contract is set up with an intermediate like a lawyer or authorities. You have to pay the lawyer’s fee or stamp duty.


Once both parties set up a smart contract on the Blockchain, no one can make the changes.

Advantages: The smart contract is executed automatically. Both sides, including the third party like the government and the founder of the Blockchain, can’t make changes to the smart contract once it is recorded on the Blockchain. It prevents the risk of violation and discredibility.

If any party is not satisfied with the agreement in the contract at any time, they may hire a lawyer to fight for it. A large sum of time and money may be spent.


Smart contracts are based on a public Blockchain, the source code is visible to anyone.

Advantages: Everyone can regulate misbehavior to avoid discredibility.It allows everyone around the globe to use it. It enables the trustless transfer so that more and more capital can enter the market.

Traditional contracts are not disclosed to the public.


As the agreement is executed by the program on the Blockchain automatically, the outcome is always the same.

Advantages:The risk of uncertainty in the transaction is reduced.

It depends on who executes the agreement. If you are rich enough, you may hire the elites to execute. But what if you don’t?


Smart contracts can be applied in many different ways, not only in transactions. They can be used to create many types of decentralized applications (D-Apps).

Advantages: It allows developers to have a greater flexibility to create different types of applications.

It is only used to protect the rights of both sides.

The restrictions of smart contracts

Here are the restrictions of the smart contract:

  1. As the smart contract is immutable, once it is recorded on the Blockchain, it can’t be changed easily. Smart contracts are made of computer code written by humans. This brings numerous risks like bugs. If someone finds a bug, you may suffer a great loss. That has happened on the Ethereum network.

  2. Furthermore, if you have made a wrong order, you can only suffer the loss and there is no legal way to ask for compensation.

  3. Many contracts require both parties to be properly identified and over 18 years old, but the smart contract does not. It may lead to legal or moral problems.

Common applications of smart contracts

The smart contract has the following common applications:

Peer-to-peer transaction: Similar to the Bitcoin network, people can carry out peer-to-peer trustless transactions with everyone online. The transactions will be verified by thousands of nodes on the network and recorded on the Blockchain.

De-Fi (Decentralized-Finance): Smart contracts are usually based on the decentralized Blockchain. In traditional business, we need an intermediate to raise capital for development, like a bank, investment bank or exchange to verify the process, no matter if you are issuing bonds or stocks.

But with the smart contract, we may set up a fundraising or borrowing mechanism on the Blockchain. It allows people to raise funds directly from the public or carry out peer-to-peer borrowing without any intermediates. Both time and money are saved for financial activities.

Game-Fi: In a traditional game, the game company can control everything in the game. Your account may be banned without any reason. All your digital assets, including skins, characters or weapons may be lost in a second.

But with the smart contract, the rights of both game developers and players are protected automatically. You will only be punished for some specific misbehaviours recorded in the smart contract. The rights of your digital assets are protected by the smart contract, rather than the servers of the game companies. No one can steal your assets as they are recorded in the Blockchain, which is transparent and immutable.

As the property rights become clear with the system of smart contract, the inter-game transactions become more and more popular. Some players may earn a decent income in a game. That’s why the concept “Play-To-Earn” has become more and more popular.

D-Apps (Decentralized Applications): Developers may set up a decentralized exchange, social media, game or gambling application on the Ethereum Blockchain. Especially the gambling applications, as the setting and rules are transparent and open to the public, the cost of discredibility is avoided.

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