Smart Contracts: How Code-Based Execution Could Reshape Transactions

Smart contracts are self-executing agreements that are stored on a blockchain. The idea is simple. A block of automated code specifying a preprogrammed set of actions is uploaded and stored on the blockchain. When certain conditions in the contract are met, the code is executed and the transaction takes place. These contracts are immutable once uploaded and don’t require any intermediaries for execution.¹

At their core, smart contracts are if-then statements. They specify that if a specified set of conditions are met, then a specified set of actions are then taken. Let’s use an example to showcase how this works in practice.

A singer wants to put on a concert and offer 100 tickets to their fans. They create a smart contract on a blockchain. This contract says “If you send $10, then a ticket will be generated via NFT and transferred to the sending address. Once 100 tickets have been generated the contract will cease all activity.” The singer announces this contract is on the blockchain and fans buy their tickets.

This approach has a number of benefits over the existing centralized system. Fans know exactly how much they’re paying for their ticket. They know all of their money is going to the artist. They can see their ticket is unique and authentic. While this example is simple, the implications across the universe of transactions are staggering.

If we focus on finance, smart contracts could be used to automate loan issuance, escrow agreements, insurance claims and real estate transfers. If the middlemen currently involved can be removed and the trust/KYC process can be automated, these contracts will reduce costs, lower settlement times and decrease fraudulent activity.

Smart contracts can play a vital role in enabling global access to capital and services for the unbanked, circumventing the need for local infrastructure. Platforms are evolving to integrate with real-world systems like legal frameworks and IoT data feeds. This will play a key role in building the next generation of digital commerce standards.

The programmable and modular nature of smart contracts allows developers to create sophisticated financial infrastructures by combining multiple contracts in layers. This capability has sparked the emergence of decentralized finance (DeFi) platforms where lending, asset exchange and investment management operate entirely via automated code execution.

While the transparent nature of blockchain-based agreements can help to enhance regulatory monitoring and trust among investors, a few obstacles remain. Coding errors in smart contracts can create security vulnerabilities. Legal recognition for smart contracts continues to differ between jurisdictions. Dependency on external data inputs for contract execution, also called oracle dependency, makes contracts susceptible to bad information reporting.

These problems are all part and parcel of a growing industry. As trust is established and contracts become more standardized and enforceable, these obstacles will be ironed out. Some efforts are already in progress². Smart contracts are positioned to be the future of transactions. The DeFi network that is growing out of their usage is poised to become a vital backbone of how the world does business and could shake the foundations of traditional finance.

Sources:

¹ Kraken Learn Team, “What Are Smart Contracts?,” Kraken, December 2, 2024, https://www.kraken.com/learn/what-are-smart-contracts

² Chainlink Labs, “What Is a Blockchain Oracle?,” Chainlink, June 2, 2025, https://chain.link/education/blockchain-oracles

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