Smart contracts are designed to layout the terminologies of the deal or an agreement. However, what makes these contracts smart is the range of terms designed and executed as the code running on the blockchain network as compared to the paper laid down on your lawyer’s desk.
The smart contracts tend to expand on the primary idea behind Bitcoin, which sends and receives money without any third-party intermediary, such as banks in the equation.
This is because it helps ensure secure decentralization and automation of different transactions and deals, irrespective of the complications involved in it. Also, since smart contracts operate on blockchain networks such as Ethereum, they promise higher reliability, seamless accessibility, and security. In addition, it also empowers the developers to create apps that utilize the power of blockchain security, accessibility, and reliability while delivering seamless peer-to-peer functionality.
At this point, it’s safe to say smart contracts are important to the cryptocurrency, and we are sharing a full guide to help you understand the ins and outs of this term!
The Importance Of Smart Contracts
The smart contracts are designed to allow developers to create an extensive range of decentralized tokens and applications. They are used for various purposes, ranging from games to logistics and financial tools – these smart contracts are stored on the blockchain network just like other cryptocurrency transactions.
Once the smart contract apps are integrated into the blockchain network, they cannot be changed and reversed, but there are various exceptions, of course.
The smart contract-based apps are often called the dApps or decentralized applications, and they will include decentralized finance technology which is intended to bring revolution to the banking industry.
As far as the DeFi apps are concerned, they are designed to allow cryptocurrency holders to conduct complicated financial transactions, ranging from insurance to loans and savings, without any financial institution in between. To provide more insights, we are sharing information about the popular smart contract-based apps, such as;
This is the decentralized exchange that allows the users to trade different types of cryptocurrencies through a smart contract. It doesn’t require central authorities for setting down the exchange rates.
This is the cryptocurrency that’s secured through smart contracts to the U.S. dollar, making it have the same value as the dollar. In addition, UDDC has become a part of the new category of cryptocurrency, which is called stable coins.
This is a platform like cashforextrade.org that utilizes smart contracts for allowing investors to earn better interest rates and allow borrowers to get quick loans without requiring a third-party intermediary.
Having said that, how can one use smart contract-oriented tools, really? To illustrate, imagine if you have Ethereum that you want to trade for USDC. You will be able to add your ETH to the exchange, and a smart contract will be implemented to help you find the most suitable exchange rate, create the trade, and transfer USDC to your account.
In addition, you can put the USDC into the compound for lending it to others and receive a significant interest rate through algorithmic equations – none of this will require third-party financial institutions, such as banks.
On the other hand, in traditional and conventional finances, swapping the currencies will be expensive and time-straining. In addition, it is not fully secure and convenient for individuals to loan their liquid assets to the unknowns. However, smart contracts can help navigate these situations pretty well without compromising on convenience and security.
History Of Smart Contracts
Smart contracts have been around since the 1990s, and it was first designed by Nick Szabo, who was a computer scientist as well as a lawyer. According to the research, Nick Szabo compared these smart contracts to vending machines – the machines that sell a soda can which is designed to give out change and a can of soda when you put in the dollar bills.
Also, if the selected can is sold out, you will be able to make another choice, which is a simple example of a smart contract as they have the capacity to automate the virtual exchanges.
The Bottom Line
The bottom line is that smart contracts have become an essential concept in the crypto world. This is because these programs stored on the blockchain network allow automated transactions with an ultimate focus on convenience, security, and effectiveness for traders and investors.