Israel Frenkel
New Kids on the BlockChain
3 min readMar 13, 2016

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Smart Contracts 101: Really Smart

What comes to mind when you think of the word “smart?” The word is defined as “showing intelligence or good judgement” by Webster. Smart is used today all over the place. We have smart phones, smart cars, Get Smart and Smarties. Well, now we have Smart Contracts. In the pursuit of understanding Blockchains and all of its accoutrements, (see “Building Blocks of the Block Chain: A 101 read” https://medium.com/blockchain-dreams/building-blocks-of-the-block-chain-a-101-read-88724d63d1b0#.3mp8pbmio) in this post I turn a discerning eye at “Smart Contracts.”
A contract is an agreement between two or more parties where there is a promise of performance in exchange for consideration, generally cold hard cash. Smart Contracts are used for the same purpose and much much more. They really begin from the point where written contracts, as we know them today, end. A Smart Contract not only includes the terms of your contract, it executes the contract as well.
A smart contract is a computer program, and just like other computer programs it is made up of “if, then” statements. If X occurs, then complete process Y. Although unlike other computer programs or written contracts for that matter, the “if, then” statements can affect actual tangible transactions. In the real world, one can use a written contract to enforce its terms if and when things go sour. A Smart Contract, though, will actually complete the contract for you.
To illustrate how this works, let’s take a simple example. John Inc. and Doe Ltd. enter into a contract for the sale and purchase of goods. John agrees that it will be pay Doe when the goods are delivered. The Smart Contract describes that John and Doe enter into a contract and an “if, then” statement details that upon John receiving the goods, payment for the goods will be remitted to Doe.
Sounds pretty normal, right? Well here comes the “smart” part. The Smart Contract is on the Blockchain! Smart Contracts are not just located there, it significantly increases the Blockchain’s usefulness. The Blockchain is a tool that collects and verifies information. When adding the function of Smart Contracts, information that is verified can trigger the Smart Contract’s “if, then” statements to place a string of executions.
When the goods are delivered to John and verified (through the Blockchain), the delivery is communicated to the Smart Contract which then connects with John’s bank account and communicates that it shall process payment to Doe. Once the goods are paid for, the payment will then be added to and verified by the Blockchain, balancing the entry that the goods were received.
Similar to a function of the Blockchain, the use of Smart Contracts removes the need for processing services completed by middle men. The Smart Contract program itself acknowledges that goods were received and makes a payment for a goods. Therefore, Smart Contracts will significantly cut down costs and the time necessary to complete processing. It is no longer necessary to have human involvement — someone at the bank doesn’t need to manually release and transfer the payment to Doe. Computers interact with each other and complete a wide array of transactions that are free of human complications.

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