Blockchain Smart Contracts: A smart contract, like any contract, creates the terms of an agreement. But unlike your traditional contract, a smart contract’s terms are accomplished as code running on blockchain like Cardano, Ziliqa or Ethereum. This article, brought to you by TokenMason discusses what a Smart contract is, how it works and why its important.
Smart contracts allow developers to create apps that take leverage blockchain security, reliability, and accessibility all while offering sophisticated P2P (peer-to-peer) functionality — ranging all the way from insurance and loans to gaming and logistics. For further information about how blockchain works, please read our blockchain article.
Just like any type of contract, a smart contract lays out the terms of a deal or agreement. What make a smart contract “smart?”. It is described as smart as the terms are established and will execute as code running on a blockchain, rather than on a paper or trust deed or sitting on a law clerks’ desk.
Smart contracts develop on the basic premise behind Bitcoin — To both send and receive money without an “intermediary” like a bank or middleman — to make it possible to decentralize and securely automate virtually any kind of transaction or deal, despite how complex. And because they execute on a blockchain like Cardano, they offer, borderless accessibility, reliability and security.
Why are smart contracts important?
A Smart contract will allow a developer to build a variety of decentralized apps and tokens. They’re used in everything from game experiences, logistics, new financial tools and they’re warehoused on a blockchain much like any other crypto related transaction. Once a smart contract app is added to the blockchain, it generally can’t be altered (albeit there are some exceptions).
Smart-contract-powered apps are often referred to as “decentralized applications” or “dapps” – include decentralized finance (or DeFi) technology that aims to revolutionise the banking industry. DeFi apps allow people to engage in complex financial transactions — Loans, insurance and savings, — all without a financial institution or bank taking a cut and can be completed from anywhere within the world. More popular current smart-contract apps include:
- Uniswap: A DEX (decentralized exchange) that permits users via smart contract, to trade certain crypto without the need for a central authority setting terms and exchange rates.
- Compound: A platform that utilises smart contracts to let investors both earn interest and borrowers to get a loan without the requirement for a bank to facilitate the transaction.
- USDC: A cryptocurrency pegged via a smart contract to the US dollar, resulting in one USDC worth one whole U.S. dollar. UDDC is part of a novel category of digital currency known as stablecoins.
So how would one use a smart contract-powered tools? Imagine you’re holding some Ziliqa that you’d like to trade for USDC. You could put some Ziliqa into Uniswap, which, via a smart contract, will automatically seek the best exchange rate, execute the trade, and forward you your USDC. You could then transfer some of your USDC into Compound to loan to others and in return receive compensation in the form of an algorithmically determined rate of interest — all without the need for a bank or other institution -Blockchain Smart Contracts.
Practical use cases of smart contracts include: government voting; record storing; supply chain management; property ownership, mortgages and insurance claims.
In traditional finance, the swapping of currencies is usually expensive and is time consuming. And its not easy nor secure for individuals to loan their liquid assets to strangers they’ve never met from the other side of the world. But smart contracts will make both of those scenarios, and a vast variety of many others, possible.
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