What is a smart contract and what is it for?

August 1st, 2022
What is a smart contract and what is it for?

Smart contracts are computer programs designed to be executed automatically as the individuals or companies involved in an agreement comply with its clauses. Based on blockchain technology, they promise to transform the conventional way of doing business in the not-too-distant future, eliminating the need to interpret whether a clause has been executed or not, thus making smart contracts deterministic and executed autonomously.

When we talk about blockchain we are referring to a shared registry, that is, a large database that is replicated in several places, so it is impossible for it to be maliciously modified. Thanks to this technology we can store and share data and information of any kind in a secure way, even between parties that do not trust each other.

Each inserted block of information is transmitted and stored in each of the blockchain replicas, creating what is called a distributed ledger. The information blocks are linked to each other as they are validated by different users, through cryptographic seals that are generated both with the information of the last block and the cryptographic seal of the immediately previous block. In this way, the security and authenticity of the operations are guaranteed because once validated they cannot be altered or deleted without the rest of the users knowing and without altering the cryptographic seals of all the blocks.

As the security of transactions is guaranteed through blockchain technology, smart contracts can operate automatically, this means that verification by a supervisory entity is not necessary.


It is essential that each of the parties involved in the contract knows and accepts in advance the rules and steps that are going to be executed, because once the execution of the smart contract has begun, the programmed rules cannot be altered. Each step or clause formed is registered in the blockchain and cannot be modified.