What’s the purpose of smart contracts?

What’s the purpose of smart contracts?

Blockchain Basics Series [ 2/ 8 ]

This is Part 2 of Blockchain Baasics Series, it read the 1st part,

Visit: What is Blockchain?

So, we know what Blockchain is! But, now we will start to learn where we implement this technology in multiple products and use cases.

📝 What are Contracts?

Every transaction in our day-to-day life involves some kind of agreement or contract.

For example, if you are going to a house contractor to buy a house, you and the contractor promise each other that you will pay money to build a house according to your specifications and the contractor has to give keys to a finished home.

To make it more relatable, think of contracts and agreements as promises. Traditional contracts, however, require trust between parties, and this doesn’t always work in favour of honesty and fairness.

To solve this issue of Trust, we use Smart Contracts.

😎 Smart Contracts

It’s an agreement, contract, or set of instructions that is deployed on a decentralized blockchain. Plus points of using a Smart Contract are:

  • It cannot be altered (immutable)

  • It automatically executes

  • Everyone can see the terms of the agreement.

If we made a smart contract for your House Agreement, then each party has to sign it on-chain and deliver the products accordingly.

The house owner can enlist the material used factors like the company of cement, and steel used. As well as the contractor can also enlist Contraction Period and Supervision Charges. The smart contract can't be altered so there will be no clashes after all.

Smart Contracts are like "Unbreakable Promises"

✔ Benefits of Smart Contracts

  1. Decentralized: The different people who run this blockchain are known as Node Operators. It takes all these thousands of nodes running the same network, algorithm and software to make blockchain decentralized.

  2. Transparency & Flexibility: It is clear to everyone. Everyone can see and take action if anything smells fishy.

  3. Speed & Efficiency: The transactions are blazing fast as there is no intermediary involved in the blockchain.

  4. Security & Immutability: Blockchain smart contracts are immutable, they can’t be changed once deployed. And Nearly Impossible to hack.

  5. Counterparty Risk Removal: One can’t alter the contract based on one’s greed, interest, or ego to get better results for themselves.

These Smart Contracts are used in various decentralized platforms and products for improved trust.

⚒ Smart Contracts Enabled Fields

  1. DeFi: Decentralized Finance, gives users a way to access the market without going through a centralized intermediary.

  2. DAOs: Decentralized Autonomous Organizations are groups that are governed completely decentralized by a contract, agreement or a set of instructions on-chain. Voting and Governance technology is completely decentralized, evolving the politics to make it more efficient, fair and reasonable.

  3. NFTs: Non-Fungible Tokens are digital arts or unique assets like Bored Apes and Crypto Punks.

That's the wrap for this article.
Happy Learning 🤗