What is a Smart Contract?
Like any other contract, a smart contract sets forth the conditions of a deal. Traditional contracts work by an agreement being made and carried out between two parties. Smart contracts, however, are implemented as code running on a blockchain like Ethereum.
Smart contracts enable developers to create blockchain-secured, dependable, and easy-to-access applications, which may then be used to support complex peer-to-peer interactions, including lending, insurance, logistics, and gambling.
Any agreement or transaction will include the conditions laid forth in a smart contract. Smart contracts are “smart” because they’re programmed into blockchain code, rather than onto paper in a lawyer’s office.
Instead of using a bank to transmit and receive money, smart contracts use code to automate and decentralize almost any transaction, even if it is quite complicated. They operate on a blockchain like Ethereum, which means they provide greater security, dependability, and accessibility to everyone, regardless of where they are located.
What is an Example of a Smart Contract?
Nick Szabo, a computer scientist and lawyer, originally proposed smart contracts in the 1990s. Szabo is famously quoted as saying that a smart contract is much like a vending machine. The machine that sells Coke for a quarter is like a vending machine.
Regardless of what kind of soda you choose, the machine is programmed to either give you 75 cents in change or create your drink, and it will only urge you to make another option or return your dollar if no soda is available.
This is an example of a basic yet complex smart contract. Every type of transaction may be completed with the help of smart contracts; this works in the same way as a Coke machine that automates a sale without a human middleman.
How Do Smart Contracts Work?
A vast array of decentralized applications and tokens may be built using smart contracts. Some are being utilized in a wide variety of innovative financial tools, logistics, and gaming experiences, as well as in initial coin offerings (ICOs).
These transactions are recorded on a blockchain, just like any other cryptocurrency transaction. Smart-contract apps usually cannot be reversed or modified after they have been uploaded to the blockchain (although there are some exceptions).
Decentralized applications that are driven by smart contracts are frequently referred to as “decentralized applications” or “dapps.” These applications often include applications that use decentralized finance (or DeFi) technology in the banking sector.
Cryptocurrency users may use applications developed by DeFi teams to conduct sophisticated financial operations like as loans, savings, and insurance, without a financial institution getting a share and without any geographic limitations.
How Do I Get Started with Using Smart Contracts?
Some of the most prominent applications built on smart contracts are:
Uniswap: a decentralized exchange where users use smart contracts to trade various crypto assets. Users can also deposit their own assets to provide liquidity for trades and earn trading fees.
Aave: A platform that utilizes smart contracts to let lenders make money while providing borrowers with loans that need no middleman, such as a bank.
USDC: A cryptocurrency linked to the US dollar via smart contract, which means that 1 USDC is equivalent to 1 USD. USDC is a newer kind of digital money known as stablecoins.