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Beginners Guide to Smart Contracts

by gohar

Have you ever used a vending machine? If yes, you would have noticed how you can get the desired product by simply putting in the coin and pressing a button. There is no need for a third party in the entire process to complete the transaction. Smart contracts are something similar. They are prevalent in blockchain technology and help developers create dApps that are self-executing based on a set of instructions. The core of blockchain technology is decentralization and smart contracts, so you can often find yourself engaged in conversations around these topics with other crypto enthusiasts.

If you are planning to start trading or investing in cryptocurrencies, it is best to clearly understand what are smart contracts, what is their role in different cryptocurrencies, etc. The more knowledge you have on smart contracts, the easier it will be to make the right investment choices. If you’re ready to currently learn more about smart contracts, this article will answer all your questions.

History of Smart Contracts

Smart contracts first came into existence in 1996, a period when blockchain technology wasn’t even around. It was designed by Nick Szabo, a programmer and cryptographer. According to Nick, smart contracts can be best defined as digital protocols featuring mathematical algorithms that help execute a particular transaction. It is done when a set of pre-defined conditions are met. Although Bitcoin was the first cryptocurrency to make it big in the market, Ethereum made it easier for developers to execute smart contracts through their platform.

In the early years, only Ethereum offered the feature of creating dApps and other projects using smart contracts, but plenty of cryptocurrencies are now offering this feature. But when it comes to the quality and smoothness of smart contract execution, nothing beats Ethereum.

How Does a Smart Contract Work?

If you have been reading a good crypto blog to better understand the cryptocurrency market, smart contracts, and other related aspects, you would have a basic knowledge of how smart contracts work. These contracts contain a sophisticated code that automatically performs a specific function when a pre-defined set of instructions are met. The terms of these contracts are finalized and agreed upon by both the involved contractual parties, and you will find them stored on different blockchain platforms.

Currently, the smart contracts available across most blockchain platforms are not complex, so you cannot expect them to execute complex actions. In the present scenario, smart contracts can automatically execute two types of transactions, viz.:

  • Transactions involving fund payments when particular events are triggered
  • Transactions wherein the party is liable to pay penalty funds when certain objective conditions are not met

Since smart contract execution isn’t reliant on any human intervention, it is gaining immense popularity and will only grow in the times ahead. With smart contracts, chances of human errors are rare, so you can expect increased efficiency.

Applications of Smart Contracts

Smart contracts are widely used in almost all industries. Be it healthcare or financial services, real estate or logistics, the dominance and presence of smart contracts can be easily felt in most sectors. According to experts, the application of smart contracts will expand in the coming years as smart contracts evolve and are better equipped to solve more complex problems. At present, smart contracts are being used massively in healthcare, medication, banking, supply chain, inventory management, virtual gaming, digital identity, and KYC fields.

Are Smart Contracts Really Needed?

The use of smart contracts has turned beneficial for many sectors, so you can expect more industries to adopt the use of smart contracts in their work processes. These contracts are autonomous, meaning companies can automate a significant portion of work, massively reducing the reliance on any human intervention. It enables companies to resolve some challenging processes, especially aspects where trust is an issue. Besides being autonomous, smart contracts are also cost-effective.

Properly implemented smart contracts can eliminate the need for intermediaries from an entire process, saving big money in the long run. With smart contracts, processes become cost-effective, fast, and secure. Transparency, reliability, and enhanced security are some other reasons behind the growing use of smart contracts.

Learning About Smart Contracts Can be Your Best Time Investment

There are many blockchain platforms using smart contracts like Ethereum, Hyperledger, Corda, and more. With time, more projects are expected to come up offering advanced smart contract features. The more you know about smart contracts, the better you can predict which cryptocurrencies or projects to invest in for the best results.  

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