Understanding Smart Contracts

Humans struggle with trust, especially when it comes to money.

But there’s a solution to this, where transactions happen without having to rely on the credibility of another party.

This is possible with smart contracts. Let’s learn how they work.

This is a crypto beginners’ series to onboard newbies who are willing to learn cryptocurrency and how it works.

This series has been on for a while, all support will be appreciated :+1:. Links to previous lessons will be provided at the end of this lesson.

Now, lesson 6.

✓ What are smart contracts?
Smart contracts are self-executing contracts on the blockchain that contain an agreement to be carried out only when certain requirements are met, eliminating any need for a third party.

✓ How does a smart contract work?
Smart contracts work with the ‘if’ & ‘then’ principle. For example;
→ ‘If’ I promised to give all who read this thread $5 each when they read, like, retweet, and contribute to the topic, ‘then’ they’ll receive the reward only when they’ve met the requirements which will be verified by the smart contract.

As long as the requirements are met, the agreement will take place which makes the process automated and trustless.

Smart contracts work with blockchains like #Ethereum amongst others, they’re written with a programming language called Solidity.

✓ Brief history of smart contracts:
The idea of smart contracts was first proposed by Nick Szabo, an American computer scientist in 1994. He invented a digital currency called ‘Bit Gold’ in 1998, 10 years later #Bitcoin was created which stirred a rumour that Nick Szabo was Satoshi Nakamoto, but he denied it.

According to @Investopedia, Szabo defined smart contracts as computerized transaction protocols that execute the terms of a contract.

In previous lessons on blockchain, Bitcoin, Ethereum, and DeFi one thing is consistent which is decentralization and smart contracts play a huge role in actualizing this principle.

✓ Features of smart contracts:
→ Trustless: Smart contracts are made decentralized which removes the need of trusting a central body to oversee the process.
→ Immutable: Once the codes are written and deployed they can’t be changed which improves security.
→ Automated: The whole process becomes automatic when the needed conditions are met making it seamless.
→ Transparent: The codes are open source, meaning anyone can see them on the blockchain.
→ Programmable: Anyone with programming knowledge can deploy a smart contract with the capability of performing diverse functions.

✓ Advantages of Smart Contracts:
→ It’s an automated process.
→ It’s usually fast & accurate.
→ Open source codes are transparent.
→ Reduced cost in transactions.

✓ Disadvantages of Smart Contracts:
→ It can be vulnerable to hackers.
→ It’s limited to performing specific functions.
→ Lack of regulation poses imminent threats.
→ The codes can’t be changed once deployed.

✓ Applications of smart contracts:
→ Gaming.
→ Insurance.
→ Flashloans.
→ Real estate.
→ Agriculture.
→ Healthcare.
→ Decentralized applications.

The benefits of smart contracts far outweigh their shortcomings which are currently being worked on to eliminate them.

It would be great if you would explore and practicalize how smart contracts work on some DeFi protocols, so you can see how it works for yourself.

This is the link to the previous lessons, it covers lesson 1-5.




Wow, very informative. Thanks alot

Wow bro! Nice work man :tada::+1: