What are Smart Contracts? A Non-Tech Explanation

Smart Contracts

What are Smart Contracts?

Smart Contracts are a “way to create complex transactions between untrusted individuals”, Mark Pascall, during a presentation in New Zealand.

How do they work?

They work a lot like vending machines except they can do a lot more.

  • The vending machine accepts the coins in exchange for the product.
  • It returns change to the customers.
  • Also any body can buy products from a vending machine.
  • The vending machine has several mechanisms to protect the coins from thieves.

The concept of smart contracts was created by Nick Szabo in 1996 who was also the founder of BitGold.

Ethereum smart contracts


Ethereum Explained

Ethereum is a decentralized blockchain network which runs the smart applications.

The Ethereum Blockchain needs ether to power the smart contracts.

Developpers use a software called solidity to create smart contracts.

Vitalik Butaren introduced the ethereum project in 2014 as a two-in-one decentralized. software development platform and mining network

Ethereum Cryptocurrency

Cryptocurrency Ethereum vs Ether (Gas)

Ether is both a cryptocurrency as well as the ‘gas’ which powers the smart contracts.

Ethereum (ETH) is the 2nd most popular cryptocurrency after Bitcoin.

DApps (Decentralized Applications)

DApps are often confused with smart contracts.

Simply put, dapps are the ‘infrustructure’ that run the smart contracts.

We could also compare them to the vending machine manufacturer.


In simple terms, Erc20 is like a template for developpers.

ICOs prefer using ERC20 tokens for their ICOS (Initrial Coin Offerings) because everything has already been created for the developpers which makes it easier to set up.

Other Blochain platforms which have smart contract features are:

The Future

Unfortunately at this time, smart contracts are not used to their maximum potential.

Smart contrast are mostly used for Initial Coin Offerings which just once of their functionalities.

Nevertheless, many companies are very keen on the idea of digital asset transfer.

Let me know if this info was helpful for you 😉


Marie Founder of Satoshi Library

Owner of SatoshiLibrary


Thank you for visiting!

And also, if you feel comfortable enough to give me your email, just enter it below and I just might send you an email one of these days 😉

 Disclaimer: I am not a financial advisor and the information provided does not replace professional advice. Cryptocurrency prices are highly volatile as well as evolving very quickly. This post may contain inaccuracies, so please do your own research before placing money in any website. Thanks!