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Smart contracts are lines of codes stored on a blockchain and are automatically executed when predetermined conditions are met. Simply put, they are the programs that are executed the way they have been set up to run by the developers. Smart contracts are extremely beneficial when it comes to business collaborations. This is why many companies are adopting the concept of smart contracts to build their cryptocoin exchange platforms.

The main idea of a smart contract is to remove reliance on a third party to establish business relations. Both the parties that make an agreement can transact with each other directly.

What does a smart contract do?

To understand the working of a smart contract, let us take an example. You need to buy a car at a dealership and there is no secret to it that various steps are involved in the process. You may have to acquire funding if you cannot make the payment in full. This requires your credit check and identity verification. You will also have to interact with different people, including finance broker, salesperson and lender.

Smart contracts streamline this complex process. As a user’s identity is stored on a blockchain, lenders can make a quick decision about credit. Following this, a smart contract is created between the bank, the dealer and the lender. Once the dealer receives the funds, the lender holds the car’s title and the repayment occurs based on the terms agreed upon. As the transaction is recorded on the blockchain and is shared among participants, the ownership is automatically transferred.

Many cryptocoin exchange platforms are embracing the concept of smart contracts for cryptocurrency trading, to allow their users to have complete control over their transactions.

The benefits of smart contracts

More speed and accuracy

As smart contracts are automated and digital, you need not spend time to process paperwork or rectify the errors that are usually there in the documents that have been written manually. Moreover, computer code is more accurate than the formal and technical language used to prepare a contract.


A smart contract automatically executes transactions when predetermined rules are met. The encrypted records of these transactions are then shared among participants.

Protected against failure

As businesses need not depend on a third party, no single entity has control over data or money. Even if any person leaves the blockchain network, the network continues to function without any loss of data or integrity.

Fraud reduction

Given that a smart contract is stored in a distributed blockchain network, everyone on the network validates the outcome. Thus, no one can release other person’s data or funds as other blockchain participants would notice this and treat it as an invalid attempt.

Cost reduction

The elimination of intermediaries results in cutting down additional fees. This allows businesses and customers to transact while ensuring lower transaction fees.

Blockchain networks that use smart contracts

There are various examples of different blockchain networks that implemented smart contracts, and many xe exchange platforms have used these smart contracts for trading. However, the most notable names of blockchain networks include Bitcoin and Ethereum.


Bitcoin is usually renowned for transactions of Bitcoin cryptocurrency, but the protocol can be used to create smart contracts, too. Bitcoin provides a programming language that allows the creation of custom smart contracts like multisignature accounts, escrows, payment channels and time locks.


Ethereum is a popular smart contract framework, especially designed for creating smart contracts. It is a decentralized platform that runs a smart contract without any possibility of censorship, fraud, downtime or third party interference. The Ethereum blockchain database stores transactions involving smart contracts as well as their source code.

To sum up, smart contracts provide a new type of business relationship that is built on trust. By inheriting the properties of blockchain, smart contracts offer immutability as well as distributed storage. This is what makes them different from the usual agreements. Due to immutability and distributed storage, smart contracts are deemed a credible way of making business agreements and executing transactions.