Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code.
Table of Contents
- Smart contracts and their advantages
- Smart contracts storage and execution on the blockchain
- Potential impact on business
Smart contracts and their advantages
These contracts allow for trustless and transparent transactions without the need for intermediaries, such as lawyers or banks. The concept of smart contracts was first introduced by Nick Szabo in 1994, but it was not until the launch of Ethereum in 2015 that the technology became widely accessible.
Smart contracts are an integral part of the Ethereum platform, and they are written in Solidity, a high-level programming language specifically designed for Ethereum. Solidity is a Turing-complete language, which means that any computable problem can be solved using it. This makes it possible to create complex contracts that can execute a wide variety of tasks automatically and without human intervention. They can be used for a variety of purposes, from digital identity verification to supply chain management to decentralized finance (DeFi) applications like lending and borrowing.
Smart contracts storage and execution on the blockchain
When a smart contract is deployed, on any network that supports it, it is stored on the blockchain, which is a decentralized, immutable ledger of transactions. After the deployment the code and its execution cannot be changed and anyone can visualize it, this provides transparency to the transaction. Only if certain predefined conditions are met, the smart contract will execute, for example if a specific amount of Ether or Matic (Polygon Network) is made, or a certain task is completed.
One of the main advantages of smart contracts is their ability to automate the execution of complex financial transactions, without the need for intermediaries. This has led to the development of a new wave of decentralized applications (DApps) built on the Ethereum platform, such as decentralized exchanges (DEXs), lending and borrowing protocols, and prediction markets.
A smart contract, for example, could be used to build a decentralized lending protocol. The borrower would deposit Ether into the smart contract, and the lender would deposit the desired amount of stablecoins, such as Tether or USDC. The smart contract would then execute the loan, and the borrower would receive the stablecoins. The borrower would then pay back the loan with interest, and the smart contract would automatically transfer the Ether back to the lender.
Potential impact on business and the blockchain industry
The way we conduct business has the potential to be greatly affected by smart contracts, changing the way we interact with each other. The high level of security and transparency offered by smart contracts is unprecedented and it was impossible for a traditional contract to offer, making possible for complex contracts to be executed without human intervention.
Although DeFi (decentralized finance) and DApps are still great experiments, the more popular these platforms become, the more important role smart contracts plays in the blockchain industry and business in general.
