Blockchain and smart contracts – difference and correlation

blockchain and smart contracts

Talk about the two most buzzing phenomena of the contemporary tech and fintech worlds and blockchain and smart contracts are sure to take the cake away. Now, blockchain and smart contracts, while often used interchangeably, are not exactly the same thing. They are certainly strongly related to each other though. Put simply, you can say that blockchain and smart contracts might not be identical twins but they elevate each other’s functionality.

To understand the correlation and difference between blockchain and smart contracts, you have to gather a basic idea about the two concepts. The post below offers a brief about the basic concepts of blockchain and smart contracts.

Blockchain and smart contracts decoded


Blockchain refers to a cutting-edge Distributed Ledger Technology. This DLT tech comprises a decentralized digital network that is operated by a distributed racquet of computers (nodes). A blockchain network runs on a decentralized, trustless, and transparent platform where every data recorded is protected by cryptographic encryption. Every block has to go through a thorough validation process and is only added when the nodes approve of its addition to the existing chain. Blockchain came to fame with the evolution of cryptocurrencies as these digital assets are developed on a blockchain network. Thus, you have Bitcoin blockchain, Ethereum blockchain, and so on. However, the use and application  of blockchain technology stretches far beyond cryptocurrencies.

Smart contracts

Smart contracts can be defined as software programs that have been developed on a blockchain network. These contracts can be defined as digital “if-then” statements or agreements that are settled between two (minimum) parties. One of the major features of smart contracts is that these contracts are self-enforceable and powered by automation. As a result, the smart contracts will execute the terms coded in the contract once the specified conditions have been met.

For example, let’s say an entrepreneur puts the payroll system in a smart contract. The entrepreneur can set the rules regarding payment to employees, such as, each payment will be processed by the first day of every month. The money will be held in a smart contract wallet. Once the terms are met, the smart contracts will automatically release payment for the employees.

Ethereum was the first blockchain to introduce smart contracts to the world. The blockchain platform uses Solidity language for developing smart contracts. As of now, the famous blockchain hosts around 2 million smart contracts. Added to Ethereum, another popular blockchain that houses a growing number of smart contracts is Cardano. The Cardano blockchain listed 200+ smart contracts in the year 2021.

Correlation and difference between blockchain and smart contracts

Blockchain houses smart contracts

Based on the discussion above, it can be stated that blockchain is the foundation platform for smart contracts. We would not have got smart contracts if there had been no blockchain technology. Blockchain is that wide umbrella where smart contracts are developed – like the way cryptocurrencies are developed on blockchain.

All blockchains don’t carry smart contracts

It’s also to note here that while smart contracts cannot exist without blockchain, a blockchain platform can exist without smart contracts. Thus, all blockchains you come across might not carry smart contracts. For example, Bitcoin blockchain does not hold smart contracts. The Ripple blockchain is another example that does not hold smart contracts.

Smart contracts amplify functionality of blockchain

Smart contracts carry the potential of real-world use cases. These contracts can be applied to almost any industry out there, ranging from insurance to health to car rental to crowdfunding to supply chain, and so on. All blockchains that carry smart contracts are thus able to offer a better range of functionality than those that don’t carry smart contracts.

Smart contracts share blockchain features

This is one of the most important aspects of the correlation between blockchain and smart contracts.

As smart contracts rest on blockchain, they have imbibed the typical features of blockchain technology-

  • Decentralized framework
  • Immutability
  • Transparency
  • Cryptographic protection

As a result, smart contracts are able to offer the similar benefits that you enjoy with blockchain technology.

Smart contracts have to follow blockchain rules

Just the way smart contracts have imbibed the characteristics of blockchain, similarly, they have to follow the rules of the blockchain.

In that light, it must be mentioned that certain blockchain protocols prevent the blockchain and smart contracts from accessing data from the outside world.  Now, this is a big problem. Smart contracts need to access off-chain data for exercising their full potential. In fact, smart contracts need off-chain data especially when they have to execute a task for the off-chain or physical world. In such a situation, the mentioned blockchain rules largely limit the use-case potential of smart contracts.

Oracles come handy

Oracles are the innovative programs that help to solve the problem mentioned above- smart contracts not being able to access off-chain data due to blockchain protocols. Oracles fill the gap here by bringing off-chain or external world data to smart contracts so that they can explore their potential at their best. In other words, oracles help the smart contracts running on blockchain to amplify their scope of functionality in the real world- despite the blockchain limitations. You will be glad to know that the use of oracle for smart contracts don’t hamper the latter’s existence and operation on blockchain.

Wrapping up

We will conclude the article with a brief on the multiple advantages of smart contracts.

As mentioned above, smart contracts share characteristics with blockchain. Likewise, these contracts also share the benefits of blockchain technology. Thus, thanks to their decentralized infrastructure, smart contracts allow faster and more affordable transactions or execution of information. Then, being transparent, every clause and terms featured on these contracts are always visible to every single party involved in the contract. This easy level of transparency helps to rule out risks of miscommunication between the parties involved in the contract.

Besides, smart contracts assure automatic payment or transaction that eventually eliminates risks of one party dishonoring the rules of the contract. Also, since smart contracts are immutable, no party in the contract can alter the terms of the contract or any information once the contract has been settled.

Leave a Reply

Your email address will not be published. Required fields are marked *