Understanding the Basics of Smart Contracts – An Overview

3 minutes

Are you looking for a secure and reliable way to execute transactions? Smart contracts may just be the way to go. They are gaining popularity across a range of industries not typically associated with Web3—so it’s important to understand the basics. 

What are Smart Contracts?

Smart contracts are digital contracts that are self-executing, meaning they are automatically executed once a certain condition is met. They are essentially a set of rules written in computer code that are stored on a blockchain, a distributed ledger, and enforced by a decentralized network of computers. The code and conditions in a smart contract are transparent and cannot be changed, so they provide a secure, trusted, and reliable way to execute transactions.

Smart contracts allow for the automation of trust and can be used to facilitate agreements between two or more parties on a wide range of transactions. They can be used to facilitate the exchange of money, property, shares, or any other asset, and can also be used to enforce the terms of a contract. Smart contracts can also be used to build decentralized applications (Dapps) that are hosted on a blockchain.


Benefits and Potentials of Smart Contracts

Smart contracts offer a fast and cost-effective way to conduct digital transactions. They eliminate the need for third-party intermediaries and the chances of fraud and manipulation, making them more secure and reliable. Compared to traditional contracts, they are less prone to litigation because the terms are set by code and cannot be easily altered.

The potential applications of smart contracts go beyond simple digital payments. They can be used in a variety of industries, such as insurance, healthcare, real estate, and supply chain management, among others. For example, in the insurance industry, a smart contract can be used to automate the processing of claims and other transactions. In healthcare, they can be used to keep electronic medical records secure and immutable.

Regulations and Compliance of Smart Contracts

As the use of smart contracts grows, governments and other organizations have begun to introduce regulations to ensure that they are properly used and protected. Singapore, for instance, recently joined the ranks of nations requiring digital payment operators to follow the same sort of regulations and customer protection requirements that apply to conventional financial institutions. Under the new rules by the Monetary Authority of Singapore (MAS), cryptocurrency exchanges and other digital asset service providers must now register with MAS and comply with requirements such as Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) regulations. MAS also require exchanges to have a minimum of SGD 5 million (approx. US$3.7 million) in capital as well as segregate customer funds.


The use of smart contracts is becoming increasingly widespread due to their potential to facilitate transactions in a secure, trusted, and reliable way. As governments and other organizations put regulations in place to ensure their proper use and protection, we can expect to see them gain further traction in the years to come.

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