Role of Blockchain Technology in Evolution of Smart Contracts: Explained!

What is blockchain technology and how is it being used in decentralised finance and smart contracts?

As we navigate the digital age, the need for secure, transparent, and efficient solutions to manage transactions and agreements becomes increasingly critical. Enter smart contracts – self-executing digital contracts that facilitate, verify, and enforce the performance of a contract without the need for intermediaries.

The backbone of these revolutionary tools is blockchain technology, which provides the foundation for trustless execution and transparency in smart contracts.

This article aims to explore the role of blockchain technology in the evolution of smart contracts, delving into the technical aspects and real-world use cases. We will also discuss the challenges and limitations associated with blockchain-based smart contracts and examine the future of this powerful technology.

Recommended Read: How to Draft a Contract

Understanding Blockchain Technology

At its core, blockchain technology is a decentralized digital ledger that records transactions across a network of computers. Its unique design offers several advantages over traditional databases, including:

Core features of Blockchain technology

  1. Decentralization: Blockchain eliminates the need for a central authority, distributing control across a network of nodes.
  2. Immutability: Once data is recorded on a blockchain, it is virtually impossible to alter or tamper with it.
  3. Security: Blockchain employs advanced cryptographic techniques to ensure the integrity of the data.
  4. Consensus: Blockchain networks use consensus mechanisms to validate transactions and maintain the integrity of the ledger.

Types of blockchains

  1. Public blockchains: Open to anyone, public blockchains allow for the greatest level of decentralization and transparency. Examples include Bitcoin and Ethereum.
  2. Private blockchains: Restricted to a select group of participants, private blockchains offer greater control and privacy, making them suitable for organizations and consortiums. Examples include Hyperledger Fabric and Corda.
  3. Consortium blockchains: A hybrid between public and private blockchains, consortium blockchains are controlled by a group of organizations, allowing for greater collaboration while maintaining privacy. An example is Quorum.

Consensus mechanisms

  1. Proof of Work (PoW): The original consensus mechanism used by Bitcoin, PoW requires miners to solve complex mathematical problems to validate transactions and add new blocks to the blockchain.
  2. Proof of Stake (PoS): A more energy-efficient alternative to PoW, PoS relies on validators who “stake” their cryptocurrency holdings to validate transactions and create new blocks.
  3. Delegated Proof of Stake (DPoS): An iteration of PoS, DPoS involves a voting system where token holders elect delegates responsible for validating transactions and maintaining the blockchain.
  4. Practical Byzantine Fault Tolerance (PBFT): A consensus mechanism designed for permissioned blockchains, PBFT ensures agreement among nodes even in the presence of malicious actors.

Security and immutability

Blockchain’s decentralized architecture and consensus mechanisms ensure the security and immutability of its data. This level of trust and transparency is crucial for the development and deployment of smart contracts.

The Emergence of Smart Contracts

Nick Szabo’s concept of smart contracts

In the 1990s, computer scientist and cryptographer Nick Szabo proposed the concept of smart contracts – digital agreements that could self-execute and self-enforce based on predefined conditions. However, it took the advent of blockchain technology to bring this vision to fruition.

The launch of Ethereum

The launch of the Ethereum blockchain platform in 2015 marked a significant milestone in the evolution of smart contracts. Developed by a group of developers led by Vitalik Buterin, Ethereum was designed specifically to enable the creation and execution of smart contracts on a decentralized platform.

Smart contract platforms


Ethereum remains the leading platform for smart contracts, thanks to its robust and flexible infrastructure, large developer community, and extensive ecosystem of decentralized applications (dApps).


NEO, often referred to as the “Chinese Ethereum,” is another prominent platform for smart contracts. It focuses on creating a smart economy by integrating digital assets, digital identity, and smart contracts.


Cardano is a third-generation blockchain platform that aims to solve some of the scalability, interoperability, and sustainability issues faced by first- and second-generation blockchains like Bitcoin and Ethereum. It has a strong focus on research-driven development and offers a secure and flexible environment for smart contracts.


EOS is a scalable, high-performance blockchain platform designed for the development and execution of smart contracts and dApps. Its unique consensus mechanism, called delegated proof-of-stake (DPoS), allows it to achieve faster transaction speeds and greater scalability compared to other platforms.

Programming languages for smart contracts

#1. Solidity

Solidity is the most widely used programming language for smart contracts. Developed specifically for the Ethereum platform, it is a statically-typed, contract-oriented language that draws inspiration from C++, Python, and JavaScript.

#2. Vyper

Vyper is an alternative to Solidity that prioritizes simplicity, security, and auditability. It is a Pythonic language designed for writing smart contracts on the Ethereum platform.

#3. C++

C++ is a general-purpose programming language that can be used to write smart contracts on platforms like EOS, which supports the development of contracts using WebAssembly (Wasm).

#4. Python

Although not as popular as Solidity, Python can also be used for smart contract development on platforms like NEO, which supports the NeoVM virtual machine for executing contracts written in multiple languages.

How Blockchain Technology Enables Smart Contracts

You can read about this more, in our deep dive on smart contracts.

A. Decentralization

Blockchain technology enables the decentralized execution of smart contracts, removing the need for trusted intermediaries and reducing the potential for fraud, corruption, and censorship.

B. Trustless execution

Smart contracts on a blockchain execute automatically and deterministically based on the terms encoded in the agreement itself.

C. Transparency and auditability

Blockchain technology ensures that smart contracts are transparent and easily auditable. Every transaction and contract execution is recorded on the distributed ledger, allowing participants to verify the contract’s integrity and performance.

D. Automation and efficiency

Smart contracts automate the execution of contractual agreements, reducing the need for manual intervention and minimizing human error. This leads to increased efficiency and cost savings for businesses and individuals.

Related Read: Types of Commercial Agreements you should know about

E. Interoperability and tokenization

Blockchain technology enables the seamless exchange of value between different platforms and ecosystems. This interoperability allows smart contracts to interact with various tokens and assets, unlocking new possibilities for cross-chain collaboration and tokenization of real-world assets.

Challenges and Limitations of Blockchain-based Smart Contracts

A. Scalability

One of the primary challenges faced by blockchain-based smart contracts is scalability. As the number of users and transactions grows, the underlying blockchain networks can become congested, leading to slow transaction times and higher fees.

B. Privacy

Smart contracts executed on public blockchains are inherently transparent, which may not be suitable for applications that require privacy or confidentiality. Solutions like zero-knowledge proofs and private blockchains are being developed to address these concerns.

C. Legal and regulatory uncertainties

The legal status and enforceability of smart contracts remain uncertain in many jurisdictions. This uncertainty could hinder the widespread adoption of blockchain-based smart contracts until clear regulatory frameworks are established.

D. Technical complexity and potential for errors

Writing and deploying smart contracts can be complex and error-prone. Bugs or vulnerabilities in the contract code can lead to unintended consequences, financial losses, or even the collapse of entire platforms, as seen in the case of The DAO hack in 2016.

E. The oracle problem

Smart contracts often rely on external data to execute their terms. However, obtaining reliable and secure data from the off-chain world remains a challenge known as the “oracle problem.” Decentralized oracles and other solutions are being developed to address this issue.

Real-world Use Cases of Blockchain-powered Smart Contracts

A. Finance and banking

Smart contracts can streamline various financial processes, such as lending, clearing and settlement, and securities trading. They can also enable the creation of decentralized finance (DeFi) platforms that provide financial services without intermediaries.

B. Insurance

Blockchain-based smart contracts can automate claims processing, reduce fraud, and increase efficiency in the insurance industry. They can also enable the creation of parametric insurance products that pay out automatically based on predefined triggers.

C. Supply chain management

Smart contracts can improve the traceability, transparency, and efficiency of supply chain management by automating processes such as product tracking, inventory management, and payments.

D. Real estate

In the real estate industry, smart contracts can simplify processes like property registration, title transfers, and rental agreements, while reducing the need for intermediaries.

E. Healthcare

Smart contracts can be used to securely manage and share patient data, automate insurance claims processing, and facilitate verification of pharmaceutical products in the healthcare industry.

F. Government and public services

Governments can leverage smart contracts to streamline various public services, such as voting systems, identity management, and the distribution of social benefits.

G. Intellectual property and digital content

Smart contracts can be used to manage intellectual property rights and automate royalty payments for creators of digital content, such as music, videos, and software.

The Future of Smart Contracts and Blockchain Technology

A. Technological advancements

#1. Layer 2 solutions

To address scalability issues, layer 2 solutions such as sidechains, state channels, and rollups are being developed, enabling faster and cheaper transactions while maintaining security and decentralization.

#2. Interoperability protocols

Interoperability protocols like Polkadot, Cosmos, and Interledger are being developed to facilitate seamless communication and value transfer between different blockchain networks.

#3. Formal verification

Formal verification techniques are being adopted to enhance the security and reliability of smart contracts by mathematically proving the correctness of the contract code.

B. Regulatory developments

  1. Defining the legal status of smart contracts

As smart contracts gain adoption, governments and regulators will need to define their legal status and enforceability within existing legal frameworks.

  1. Standardization efforts

Standardization efforts, such as the development of common frameworks and best practices, will be crucial for promoting the widespread adoption and integration of smart contracts across industries.

  1. Cross-jurisdictional collaboration

Cross-jurisdictional collaboration will be necessary to create harmonized regulatory frameworks that support the global adoption of blockchain-based smart contracts and foster innovation in the space.

Related Read: Smart Contract vs Traditional Contracts: What’s the Change?

C. Increased adoption and integration

As smart contracts become more mature and their benefits become more widely recognized, we can expect increased adoption and integration across various industries. This will drive the development of new use cases, applications, and business models built around smart contracts.

D. Emerging trends and innovations

#1. Decentralized finance (DeFi)

DeFi has emerged as one of the most promising applications of smart contracts, enabling the creation of decentralized financial products and services without traditional intermediaries. This sector is expected to continue its rapid growth and drive further innovation.

Related Read: Is Digital Rupee (Central Bank Digital Currency) a part of DeFi?

#2. Non-fungible tokens (NFTs)

NFTs, which represent unique digital assets, have gained popularity in areas like digital art, collectibles, and virtual real estate. Smart contracts play a crucial role in the creation, management, and transfer of NFTs.

#3. Tokenization of assets

Tokenization enables the fractional ownership and seamless transfer of various types of assets, such as real estate, art, and commodities, using blockchain-based smart contracts. This trend is expected to continue and expand into new asset classes.

#4. Decentralized autonomous organizations (DAOs)

DAOs are organizations that are governed by smart contracts rather than traditional management structures. As smart contract technology matures, we may see more DAOs emerge, disrupting traditional organizational models.

Wrapping it up

Blockchain technology has played a crucial role in the development and evolution of smart contracts, enabling decentralized, trustless, and transparent execution of contractual agreements. This has opened up a world of possibilities for automating processes, reducing costs, and increasing efficiency across various industries.

The potential impact of smart contracts on industries such as finance, insurance, supply chain management, real estate, healthcare, and government services is immense. As more businesses recognize the benefits of this technology, we can expect increased adoption and integration across these sectors.

To fully realize the potential of smart contracts, it is essential to address the various challenges and limitations they currently face, such as scalability, privacy, legal and regulatory uncertainties, technical complexity, and the oracle problem.

With ongoing technological advancements, regulatory developments, and increased adoption, I believe the future of smart contracts and blockchain technology appears bright. As these innovations continue to evolve, they have the potential to revolutionize industries and redefine how we conduct business and engage in transactions.

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