Smart Contract is a contract but instead of written in human language, it is written in a programing language. Like a contract, a Smart Contract defines conditions and financial obligations among participants. Unlike a contract, with a Smart Contract, financial obligations can be executed automatically if conditions are met, without underwriters, lawyers or law enforcement entities.
A contract can protect financial rights of participants only if there is a government enforce and operate. Financial obligations in contracts is money. Money is managed and operated by banks. A Smart Contract is a program and only execute on Blockchain. Blockchain is a network of computers, obey to a protocol that provide services similar to a bank such as : holding balances, transferring value, recording ownership, enforcing rules automatically, and keeping an immutable transaction history.
What Conditions can be added to a Smart Contract ?
Not every statement in contract can be converted to Smart Contract. Smart Contract is a program so it works well with precise numbers and clearly defined if-else conditions such as: money amount, date time, vote counting, temperature.
For example that a company is using Smart Contract to pay employees salary. The Smart Contract can easily implement the agreement that, at every 1st of each month, a fixed amount of money is automatically transferred from the company’s wallet to each employee’s wallets, provided that sufficient funds have been deposited in advance.
Once deployed, the smart contract does not rely on the company’s willingness to pay or on any manual action from accountants or banks. If the date condition is met, the payment is executed exactly as written. If the funds are not available, the payment simply does not occur, making the failure transparent and verifiable to all parties.
In this way, the smart contract replaces trust in the employer or intermediaries with trust in predefined rules and automated execution, ensuring predictable and timely salary payments without human discretion.
However, the smart contract cannot determine whether the employee actually worked, worked well, or should be fired. Those human decisions must be made outside the system. The smart contract only enforces what was clearly defined in advance: who gets paid, how much, and when.
What Conditions can NOT be added to a Smart Contract ?
Smart Contract can not work with Emotions, Quality Judgements, Real Life Events.
For example that a company hires a developer under this agreement:
“The developer will build a high-quality mobile app that meets business needs.
Payment will be made if the work is satisfactory.”
This is where Smart Contract can not replace contract. A smart contract, as a program, can not decide:
- Whether the app is “high-quality”
- Whether it “meets business needs”
- Whether the work is “satisfactory”
These require:
- Human judgment
- Discussion
- Interpretation
- Sometimes negotiation or compromise
Smart contracts are excellent at enforcing clear rules, but they cannot replace contracts that rely on human judgment, quality assessment, or trust.
TheTechLead 