May 29, 2022
What is a smart contract?
Smart Contracts are just like any physical contract but they happen on a blockchain. Contracts establish terms of an agreement between multiple parties, this is true for smart contracts as well. The main difference between regular contracts and smart contracts is that the terms established in a smart contract are executed on a blockchain. The benefits of using smart contracts include having the security, reliability, and ease of blockchain technology. Not every blockchain can execute smart contracts.
How do Smart Contracts work?
Once the smart contract terms are established, the agreement is executed as code running on a blockchain. These agreements can be as simple as a transaction for an NFT or as complex as making a smart contact app that allows cryptocurrency holders to take out loans or buy insurance without needing a bank or corporation. Smart contract apps trying to transform the banking industry are called decentralized finance apps or Defi. We will go more in-depth in a future blog post about Defi.
Smart contracts don’t just have to be transactions between people they can also be used to connect certain coins on the blockchain to fiat currency. For example, USDC is a stablecoin that is connected to the US dollar. One USDC is equivalent to one USD, this is made possible through smart contracts on their blockchain.
Another use of smart contracts is taking out loans from an exchange called Compound. We will go more in-depth about how loans in the digital world work in a future blog post.
Smart Contract Coins
There are a few notable coins that are called smart contract coins. The most significant example of cryptocurrency blockchains that can run smart contracts is Ethereum which has the second-highest market cap right behind Bitcoin. There are other smart contract blockchains like Solana and Polkadot.
There are many different exchanges and platforms that allow the everyday user to use their digital currency to exchange for digital goods like NFTs. In a future blog post, we will be taking a deep dive into NFTs, how they are used, and where this type of technology is headed.
– Alexander Kaminer
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