Smart Contracts: Architecture, Working Principles, and Challenges

Abstract

Smart contracts are self-executing programs running on blockchain platforms that automatically enforce the terms of an agreement without the need for intermediaries. They promise benefits such as trustless execution, transparency, and efficiency, and have enabled a new wave of decentralized applications in finance, supply chain, and beyond. This research work provides a comprehensive overview of smart contract architecture, explains their working principles, and discusses the key challenges and issues they face from a computing perspective. We outline the theoretical foundations of smart contracts and how they integrate with blockchain architecture. We then detail the life cycle and operation of smart contracts, from deployment to execution, highlighting concepts like the Ethereum Virtual Machine (EVM) and transaction gas costs. Furthermore, we examine critical challenges including security vulnerabilities, scalability limits, privacy concerns, and legal/regulatory hurdles. Recent research efforts to improve smart contract reliability – such as formal verification, security analysis tools, and design best practices – are also reviewed. The paper is organized into major sections covering fundamentals, architecture, working principles, challenges, and practical considerations. Our discussion aims to inform computer science graduates and practitioners about both the promises and the pitfalls of smart contracts, providing a balanced understanding of their technical underpinnings and the ongoing research directions to address their limitations.