Smart Contracts are contracts that, instead of being written in human language, are written in a programming language. Like traditional contracts, Smart Contracts define conditions and financial obligations among participants. Unlike traditional contracts, Smart Contracts can execute financial obligations automatically if conditions are met, without the need for underwriters, lawyers, or law enforcement entities.
A contract can protect the financial rights of participants only if there is a government to enforce and operate it. Financial obligations in contracts are monetary. Money is managed and operated by banks. A Smart Contract is a program that only executes on the Blockchain. The Blockchain is a network of computers that obey a protocol that provides 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 a contract can be converted to a Smart Contract. A Smart Contract is a program, so it works well with precise numbers and clearly defined if-else conditions such as money amounts, date times, vote counting, and temperature.
For example, a company might use a Smart Contract to pay employees’ salaries. The Smart Contract can easily implement the agreement that, on the 1st of each month, a fixed amount of money is automatically transferred from the company’s wallet to each employee’s wallet, 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 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 for 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 Cannot Be Added to a Smart Contract?
Smart contracts cannot work with emotions, quality judgments, or real-life events.
For example, 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 a smart contract cannot replace a contract. A smart contract, as a program, cannot 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.