Smart contracts are self-executing contracts. These contracts operate without the need for third-party and ensure complete transparency and trust.
Introduction
“Smart Contract” was introduced by Nick Szabo. Smart Contracts are self-executing contracts that run on the blockchain and automatically execute when specific conditions are met. Smart contracts enable the development of decentralized applications (DApps), eliminating the need for intermediaries and reducing the risk of fraud. They have a wide range of applications, from handling financial transactions to managing supply chain logistics.
Dapps (Decentralized Applications)
Decentralized apps are not controlled by central server. Dapps run on a distributed peer-to-peer network. It is an open-source application. Dapps are the collection of smart contracts that perform complicated tasks, such as exchanging one token for another or ending a token using another token as collateral.
Examples of Dapps are Uniswap and OpenSea.
Web 3 and Smart Contracts
World Wide Web is in its third phase where decentralized applications utilize smart contracts. Web 3 uses technologies such as smart contracts to create decentralized applications that are not controlled by any central authority. Instead, they operate on the basis of peer-to-peer network. Web 3 makes the network more transparent, secure and decentralized.
Benefits of Smart Contracts
- Speed and Efficiency
With a high degree of automation and self-execution smart contracts streamline the entire contract implementation lifecycle thereby helping in fast, seamless and effective execution. Smart contracts reduce cost, save time and improve the overall process.
- Transparency
Smart contracts help in ensuring higher transparency and reduce the chance of corruption since any changes made to the contract require the consent of all the parties involved and can be traced back easily.
- Third-party removal
By removing the need for third party for execution, smart contracts eliminate the risk of manipulation.
- Cost Effective
Cost savings are derived from the removal of third party by removing third party presents a cheaper and more effective alternative.
- Security
Due to data encryption smart contracts are highly secure. Smart contracts are based on cryptographic encryption with unique hash mechanism therefore any hacker has to modify the whole chain to alter a single transaction.
Ethereum- The First Smart Contract Platform
Ethereum is a decentralized blockchain platform that allows peer-to-peer network that securely executes and verifies application code called smart contracts.
Smart contracts allow users to make transactions without the need for a central authority. Ethereum was visualized as a global computer that would allow developers to execute apps powered by smart contracts. Developers can build decentralized apps on Ethereum. Popular Ethereum apps i.e. MakerDAO and Compond use smart contracts for lending and allowing users to earn interest.
Use cases of Smart Contracts
DeFi- DeFi disrupts the traditional financial world through its ability to offer a range of financial products directly from one party to another through blockchain technology. Smart contracts have allowed DeFi to provide financial services without the need for a third party. Smart contracts have enabled Lending, borrowing, investment, and insurance facilities available to users. DeFi platform includes AAVE and Uniswap.
NFT (Non-fungible tokens)
NFT can be used to record ownership of virtually any digital item. Smart contracts have enabled the creation of NFTs by allocating ownership.NFTs are another addition to the Ethereum blockchain that has surged in popularity.NFTs have revolutionized the art world. NFT collection includes CryptoPunks and CryptoKitties.
Related: Ethereum: The Next Generation Smart Contracts and Dapps Platform
Conclusion
Smart Contracts are self-executing contracts that run on the blockchain and automatically execute when specific conditions are met. Smart contracts enable the development of decentralized applications (DApps), eliminating the need for intermediaries and reducing the risk of fraud. By using smart contracts users can securely complete transactions with a high degree of safety and reliability. Smart contracts are expected to achieve significant development in various fields and revolutionize contractual life.