Smart contracts defined

Smart contracts are simply programs stored on a blockchain that run when predetermined conditions are met. They typically are used to automate the execution of an agreement so that all participants can be immediately certain of the outcome, without any intermediary’s involvement or time loss. They can also automate a workflow, triggering the next action when conditions are met.

How smart contracts work

Smart contracts work by following simple “if/when…then…” statements that are written into code on a blockchain. A network of computers executes the actions  when predetermined conditions have been met and verified. These actions could include releasing funds to the appropriate parties, registering a vehicle, sending notifications, or issuing a ticket. The blockchain is then updated when the transaction is completed. That means the transaction cannot be changed, and only parties who have been granted permission can see the results.

Within a smart contract, there can be as many stipulations as needed to satisfy the participants that the task will be completed satisfactorily. To establish the terms, participants must determine how transactions and their data are represented on the blockchain, agree on the “if/when...then…” rules that govern those transactions, explore all possible exceptions, and define a framework for resolving disputes.

Then the smart contract can be programmed by a developer – although increasingly, organizations that use blockchain for business provide templates, web interfaces, and other online tools to simplify structuring smart contracts.

Benefits of smart contracts

Speed, efficiency and accuracy

Once a condition is met, the contract is executed immediately. Because smart contracts are digital and automated, there’s no paperwork to process and no time spent reconciling errors that often result from manually filling in documents.

Trust and transparency

Because there’s no third party involved, and because encrypted records of transactions are shared across participants, there’s no need to question whether information has been altered for personal benefit.


Blockchain transaction records are encrypted, which makes them very hard to hack. Moreover, because each record is connected to the previous and subsequent records on a distributed ledger, hackers would have to alter the entire chain to change a single record.


Smart contracts remove the need for intermediaries to handle transactions and, by extension, their associated time delays and fees.

Applications of smart contracts

Smart contracts can be used across industries to streamline and automate doing business down the street or around the world.

Reimagine dispute resolution

Discrepancies in financial settlements are costly, taking weeks or months to research and resolve. Smart contracts that codify agreed-upon business rules automate processes such as identifying discrepancies, reconciling documents, settling transactions, and resolving disputes.

Build a resilient supply chain

IBM Blockchain supply chain solutions use smart contracts to streamline the flow of goods by automatically triggering next steps when conditions are met, such as shipping, delivery, and acceptable IoT data about conditions during handling. Participants can act earlier to prevent disruptions should an unexpected event occur.

Bring trust to trade finance

Smart contracts are an essential component of, the trade finance network convened by IBM Blockchain that is creating an ecosystem of trust for global trade. Standardized rules and simplified trading options encoded in smart contracts decrease risk and help participants find new opportunities.

Reinvent bank letters of guarantee

Using blockchain and smart contracts, a consortium of banks digitized and transformed the bank guarantee process for both financial and performance guarantees. The new platform, Lygon, enables applicants, issuers and beneficiaries to obtain legally binding guarantees in one day.


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Writing smart contracts

The IBM Blockchain Platform supports smart contracts written in Go and Node.js. Read this tutorial to learn how to get started writing encoded business logic, terms and conditions for execution on blockchain.

Deploy a smart contract on your network

If you are running an IBM Blockchain Platform network, this tutorial will guide you through writing, packaging and deploying a smart contract using Hyperledger Fabric.

Related solutions

Supply chain transparency

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Blockchain for trade finance

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Blockchain for food supply

Growers, distributors and retailers can build trust and make our food safer, by enhancing visibility and accountability in every step of the food supply.