What Are Smart Contracts? Blockchain Agreements in Canada

May 8, 2025
Newton Team
May 8, 2025
What Are Smart Contracts? Blockchain Agreements in Canada

Traditional Contracts and Their Limitations 

Canadians sign off on terms to access services like housing, banking, and their phone plans. These agreements outline expectations and desired outcomes, but when they are broken, enforcing them is not necessarily straightforward. In traditional judicial systems, courts may be asked to step in and award compensation, but they often do not uphold the original terms of an agreement. For example, if a technician fails to show up for a scheduled internet installation, the service can be rescheduled, but the inconvenience or missed workday cannot be undone and compensation may be awarded instead. 

How Smart Contracts Work 

Smart contracts take a different approach by embedding both the terms of an agreement and the originally intended outcome directly into computer code. The code executes deterministically, carrying out the agreed terms automatically when specific conditions are met. These contracts run on blockchain networks store data and the terms of the contract on immutable ledgers. With no intermediaries required to determine or confirm whether a pre-condition or requirement for a contract has been met, the code’s logic of the smart contract’s terms determines the outcome. Oracles, which are external data feeds that provide real-world information, assist in automated network execution. Once triggered through a wallet-based transaction, the result is final. 

A diagram of a computer systemAI-generated content may be incorrect., Picture
Figure 1: How smart contracts automate agreements on blockchain versus traditional contract enforcement. 

Smart Contracts in Action: NFT Purchases Explained 

Non-fungible tokens (NFTs) are digital assets created on many of the layer one and layer two chains. They can store art, collectibles, videos, music, concert tickets or other media to be viewed online, or in places like NFT galleries, though they aren't tangible like traditional art. These digital artifacts are often traded on marketplaces or sold through auction houses like Christie’s.   

Imagine buying a rare virtual artwork online. You send crypto, and the seller is supposed to deliver the NFT. If they do not, there are few fast and effective ways to get your crypto back. With these self-executing agreements, the payment is held automatically until the token is delivered. The funds are only released when the blockchain records that the deal is complete. The protocol allows the buyer and seller to transact without relying on traditional centralized intermediaries or dispute systems. 

Smart Contract Use Cases 

These protocols are most often used in digital environments such as decentralized finance (DeFi). Proof of Work and Proof of Stake blockchains are governed by user consensus, which acts as the final authority and lets smart contracts run securely on public networks. They enable automated transactions, but carry risks such as hacks, coding errors, oracle vulnerabilities, fraud, and evolving regulatory oversight. Some chains operate on a code-is-law system, while others allow for intent of code and can alter a deterministic decision based on community consensus. 

In addition to finance, smart contracts are the foundation for many Web3 decentralized applications (DApps), enabling secure and automated services across digital ecosystems. In Decentralized Autonomous Organizations (DAOs), members often stake tokens to vote under on-chain governance rules. The protocol automatically executes approved proposals such as fund releases or system upgrades in an intermediary-free manner. 

Although primarily used for crypto-related tasks today, there is growing interest in how they could facilitate real-world applications such as property or other asset transfers, though current legal frameworks in Canada do not yet fully support such uses. 

Learn about more about crypto and blockchain technologies through resources in our Getting Started With Newton section. 

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This article is for informational purposes only and does not constitute financial, legal or tax advice.
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