This data is taken from the NISG, Niti Aayog and other papers on Blockchain.
A smart contract contains a computer code that converts a set of rules or terms and conditions for execution of a business transaction agreed upon by two or more parties that are involved in value exchange, into a computer-executable program. This program executes on the top of a blockchain where the value transfer is recorded without the authentication and verification of the trusted third party when the transaction is executed conditional upon well-defined conditions coded in the program.
In other words, if a set of pre-defined rules are met, the smart contract executes itself to produce the output which is recorded on the blockchain.
Smart contracts are the layer that has the most economic value in business as well as governmental applications of the blockchain technology. This layer leads to not only reduction of the transaction costs significantly but also leads to minimise contractual disputes and litigations
In the current state of technology, getting a court-registered document as a proof, one would first need to go to a lawyer or notary, pay them for their services and then wait till they authenticate the document. However, with blockchain technology, the scenario changes completely. When this process is executed with a smart contract, one would simply get the document by only making the payment for the asset that is recorded in the document and not for the services of any third party such as a lawyer. Therefore, smart contracts not only define the rules around any agreement, but they also automatically execute those rules, transfer value and update the asset ownership records.
Advantages of Smart Contracts: