1) What is a smart contract?
Smart contract is a protocol for creating new contracts.

A smart contract is a special protocol for partnership, confirmation or executing contents of a unique contract. Smart contracts execute deals with guaranty and without the existence of a third party. smart contracts are traceable and irreversible.
Smart contracts contain all information regarding the conditions of a contract and automatic execution of all actions leading to the desired targets.

2) How were smart contracts created?
This idea was first proposed by Nick Sabu (computer and encryption specialist) in 1994.
He defined the main principles. But the environment wasn’t suitable for bringing this idea to reality. with the birth of blockchain technology, the idea of smart contract finally became operational. Bitcoin, as the first decentralized cryptocurrency in the world, laid the groundwork for a contract in blockchain. but the bitcoin protocol was designed to create a private currency and couldn’t handle all needs and processes in this field.
Ethereum made it possible to create smart contracts for all projects and took a new step toward a more intelligent world.

3) How do smart contracts work?
To have a better understanding of smart contracts, they can be explained like this:

Smart contracts are like vending machines. When you want to buy a coke from a vending machine, you insert your money and then the machine processes your money and then gives you a coke.
Smart contracts in simple language Apart from technical points, smart contracts work like the machines mentioned above. Without needing a third party present, the payment process or execution of a smart contract is processed and if the contents of the contract are done correctly, the process resumes.

Smart contracts only automatically execute instructions given to them.
At first, assets and conditions of the contract will be coded and are put in a blockchain’s block. The contract is distributed between platform nodes and has been copied many times. After the process ends, based on terms and conditions, the smart contract will be executed.

Making different processing system smart has been done before. The difference between the old methods and the new smart contracts is the decentralized and irreversible abilities.

For example, in banking transactions, the central bank can interrupt a transaction. In smart contracts, there are no third parties with the ability to control a contract. These contracts are executed automatically.

4) What do we need to create a smart contract?
For creating a smart contract we need the following items:

  • Subject of a contract
    This application must have access to products or services mentioned in contract to be able to control the transaction processes automatically.

5) How can smart contracts be used in real life?
Thousands of great ideas can be executed using these contracts. The most important ideas which have been executed using smart contracts are:

  • Elections
    The result of elections can be inserted in a blockchain to be distributed among network nodes. All the data will be encrypted and anonymous. This method prevents any change or tampering in an election.

6) What are the advantages of smart contracts?
Security Smart contracts are encrypted and distributed among network nodes. This ensures specific smart contracts can only be stopped if both parties agree on cancellation.

  • Time saving with less costs
    Most of the processes are automated and done without the presence of a third party.

7) What problems do smart contracts have?
Despite of all advantages, smart contracts are not perfect yet.

  • Human error
    The code of all smart contracts are written by programmers and there’s the possibility of an error. If a smart contract is inserted into a blockchain, it can’t be changed anymore. A good example for human error is the DAO project. The mistakes made by programmers created a lot of problems. Some hackers used these errors and stole 60 million dollars.

A few months ago, a few services were created to help average users create smart contracts. Users will be able to create some of their smart contracts with only a few clicks. But these services are still in testing phase.