What is Smart Contract
A smart contract is a program deployed on a blockchain network, automatically executing when predetermined conditions are met.
For instance, if Bob creates a trust fund for his daughter Alice using a smart contract, the fund will be unlocked and transferred to Alice's account when she turns 18 without manual intervention.
Smart Contract was first conceived by an American computer scientist called Nick Szabo in 1994. Nick wrote, “A smart contract is a computerized transaction protocol that executes the terms of a contract. The general objectives of smart contract design are to satisfy common contractual conditions, minimize malicious and accidental exceptions, and minimize the need for trusted intermediaries.”
Bitcoin is the first blockchain that technically realized smart contracts (Source: Gemini). It allows developers to set conditions for the transaction made. For example, a multi-signature transaction requires a defined number of people to sign a transaction before it is settled. However, due to the limitation of the Bitcoin program language, it only supports simple, smart contracts.
The broad utilization of smart contracts was led by Ethereum (launched in 2015), which supports various decentralized applications to be built based on smart contracts. With the exponential growth of blockchain's popularity, technology is constantly evolving. The smart contract platform market is booming, with Ethereum leading the pack and numerous other options available, such as BNB Chain, Solana, Avalanche, Aptos, Sui, Arbitrum, Optimism, and zkSync.
What are the features of a Smart Contract?
Backed by Blockchain technology, the smart contract contains core features of the blockchain network, such as decentralization, resistance to corruption, and transparency. Beyond that, Smart Contract is also considered trustless and predictable.
The smart contract strictly follows an "if this, then that" logic. For example, if Alice turns 18, the trust fund is automatically transferred to her account. A smart contract's specific input can only deliver a fixed and intended outcome. Thus, people can read and check the logic of the contract and see the result they will get with the input.
Smart contracts are just like traditional contracts, which lay out the terms of an agreement. But unlike traditional contracts, smart contracts do not depend on legal constraints to enforce the agreement's terms. Instead, they are self-executing computer codes that follow predetermined rules. This eliminates the need for individuals to trust the counterparty or rely on a third party, such as a lawyer, to guarantee the contract is executed as it should be.
What are the use cases of Smart Contracts?
Smart contracts are the foundation of decentralized applications. They are now employed to build more complex financial products except for simple transactions. They can also be applied to traditional industries to address specific challenges.
- DeFi: Developers can use smart contracts to move traditional financial products and services onto the blockchain, such as lending, trading, derivatives, options, etc. By leveraging blockchain technology, these financial products can be executed more transparently without intermediaries.
- Artwork Transactions: Through smart contracts, artists can transform their digital collections into NFTs. The ownership and transaction details of the collections are recorded on the blockchain, which provides a transparent and tamper-proof platform. Smart contracts can also help authors better manage their copyrights.
- Supply Chain Management: Smart contracts can automate and track the movement of goods and products through a supply chain, ensuring transparency and accountability.
What else do you want to learn?