Demystifying Smart Contracts: A Comprehensive Guide to Understanding and Harnessing Their Power

Smart Contracts! Everything you need to know about them.
Are you still confused about the smart contracts and its use cases. This article explains it all.

Since its inception, Ethereum had something that Bitcoin doesn’t have – yet. Smart contracts. And although Bitcoin is the first cryptocurrency ever invented, Ethereum is the first that introduced these “software obligations” which makes it a dominant platform in its usage to date. Whether for raising capital, token swaps, automated executions, or something else – Ethereum and its smart contracts are the way to go.

This article will cover what are they, how they work, and some of their use cases. Let’s take a closer look.

What are smart contracts?

The notion of programmable contracts developed in this context long before the emergence of blockchain technology. Nick Szabo, a computer scientist, created the phrase after comparing it to the mechanical mechanism underlying a vending machine.

A smart contract is a piece of code that lives on the Ethereum blockchain. Because they run on the blockchain, they cannot be modified or tampered with. This makes them ideal for running applications that need to be secure and transparent, such as financial contracts or voting systems.

You can also use smart contracts to execute transactions automatically when certain conditions are met. For example, a rule could be set up to sell a piece of property when the owner dies automatically. Since these agreements are stored on the public Ethereum blockchain, they are available for anyone to view. This transparency is one of the main benefits of using these contracts.

Benefits of Ethereum smart contracts

Smart contracts have been one of the most talked-about features of blockchain technology in recent years. And for a good reason – they have the potential to revolutionize the way we do business. As mentioned earlier, they are self-executing and tamper-proof.

Furthermore, Gartner expects that organizations employing blockchain agreements, whether mandated or voluntary, may improve total data quality by 50%.

In addition, smart contracts can provide privacy protection. For example, they can facilitate anonymous transactions between two or more parties. 

As you can see, use cases for them are many. Consequently, Ethereum has become one of the most popular platforms for developing and deploying smart contracts. So if you’re willing to take advantage of this technology, Ethereum is a great place to start.

DeFi: Where smart contracts meet finance

Several smart contract use cases in finance range from lending, borrowing, and payment services platforms to decentralized exchanges (DEXes). 

With financial behemoths like PayPal already dabbling in cryptocurrency, digital finance businesses may evolve into something new. PayPal plans to build a crypto ‘Super App,’ which will experiment with smart contracts and blockchains to enhance payments and other transactions. This might be a wise investment to consider as we may witness the birth of a new fintech age.

DeFi (decentralized finance) is a growing area in the blockchain space, and here blockchain bonds expressed in these contracts play an increasingly important role.

Another use case for them is lending. Platforms like MakerDAO and Compound use smart contracts to enable users to lend and borrow cryptocurrencies.

Another use case is trading. DEXes like Uniswap and Kyber Network use them to facilitate trade. Users can directly trade with each other using these platforms. This makes them faster and more efficient than traditional exchanges. 

Interestingly, these work on the Automated Market Maker (AMM) model. Unlike order book exchanges, where users must wait to fulfill their limited orders, AMMs process all transactions automatically using blockchain agreements without an intermediary.

NFTs and smart contracts: Blockchain technology in gaming

With the rise of blockchain-based gaming, smart contracts are becoming an increasingly important tool. Since they are essentially self-executing contracts that are stored on the blockchain, you can use them to facilitate transactions between two parties without needing a third party.

This is particularly useful in NFTs, where people often buy and sell virtual assets.

Notably, according to Finder’s NFT Gaming Adoption Report, France will witness the largest growth in NFT game adoption, with the percentage of persons playing NFT games predicted to rise from 6% to 15% by the end of 2022, implying that NFT games will expand by 2.6 times. Peru (from 13% to 29%) and Spain (8% to 17%) will also make significant gains.

Hence, as the gaming industry grows in leaps and bounds, so will smart contracts.

Smart contracts in real estate

They are also transforming the real estate industry by making it more efficient and transparent. By tokenizing assets and automating key processes, smart contracts can help streamline property buying and selling. In addition, they can help reduce the risk of fraud and ensure that all parties adhere to the contract terms. Hence, these “software obligations” have the potential to revolutionize the real estate industry by making it more accessible and efficient.

Future of smart contracts

Smart contracts will become significantly more common as blockchain technology becomes more widely embraced and trusted.

For starters, they are growing popular in various fields. For example, it might play an important part in the future of customer service. Despite the possibility of disruption, a system with no central authority is disconcerting for many of us. Especially when blockchain-based technology still lacks data localization and border control.

As a result, while the future of smart contracts appears promising, there is still a long way to go.

The bottom line

So that’s about it for Ethereum and its most popular feature – smart contracts. We hope this term is at least a bit clearer to you now. If you are into crypto, probably you used it, without even knowing while swapping tokens, at least.

As you could see, they have a lot more additional use cases and are only going to become more popular with time.