Introduction to the Concept of Smart Contract for Beginners

What exactly is a smart contract?

A digital agreement between two or more parties, known as a “smart contract,” that can only be carried out if certain requirements have been satisfied is called a “smart contract.” It’s very much like the meaning of a contract in the actual world. Most of a contract is what it looks like, and most of the time, it takes a third party to help people agree on its terms.

At this point in time, blockchain technology is the primary application for smart contracts. It fits with the goal of blockchain technology, which is to encourage people to be open and trust each other and to store and share information about money in the right way.

Smart contracts are thought to have been created by Nick Szabo, who is well-known in the fields of computer science and cryptography. In 1996, he provided a definition for “smart contracts” in which he described them as “a collection of promises, stated in digital form, including protocols within which the parties fulfill these promises.” Long before Satoshi Nakamoto suggested bitcoin and blockchain technology, Nick wrote out his notion when it was only a hypothesis.

The first-ever cryptocurrency, Bitcoin, is not the most desired smart contract platform due to limitations in syntax and concerns with scalability. Bitcoin was the first cryptocurrency ever created.

The most common platform for developing smart contracts is Ethereum, which is also the most widely used alternative cryptocurrency and was developed specifically for the functionality of smart contracts. The creation of smart contracts is simplified by the presence of innovative tools in Ethereum such as EVM (Ethereum virtual machine) and a simple interface for application development.

When you look at specific machines that are utilized now, you’ll see that they obey the legislation or criteria that smart contracts are constructed on. This demonstrates that smart contracts are not completely new. A great illustration of this would be the vending machine that can be seen in shopping malls and school cafeterias. when you feel the desire to get something to drink or eat from the vending machine. To get it, all that is required of you is to fulfill a number of predetermined requirements first. These requirements are met when you choose the item that you want, enter the amount of money necessary to buy it, the machine verifies that you have entered the appropriate amount, and then the desired item is handed over to you.

Now that you have seen instances of smart contracts operating in the real world, let’s go over some of the advantages that may result from using such agreements.

The advantages of using smart contracts.

  • The elimination of middlemen in a transaction by the use of smart contracts paves the way for increased levels of trust between the parties involved.
  • They cut down on the expenses of transactions and save time.
  • Because smart contracts are written in code and are usually open source, it is possible to keep track of them. This is made possible by the fact that other programmers are able to go through the code and look for errors and make any required modifications.
  • Security and immutability: there is no place for manipulating contracts, and whatever has been agreed upon by people or an organization is what will be carried out. This provides a high level of both security and immutability. Because of this, it will be impossible for anybody to go back and make changes to the smart contract.

The importance of smart contracts in decentralized finance

What Is Decentralized Finance (DeFi)

Smart contracts are the fundamental building block of decentralized financial systems. It makes possible the carrying out of the use cases listed below:

Services in the financial industry: When smart contracts are used, financial services like lending, borrowing, and investing can be done without the help of a third party. This saves time and makes it easier to make decisions. Applications that are not centrally controlled include Uniswap, Pancakeswap, and Trust Wallet, among others.

Tokenization of real-world assets is the use of smart contracts to add assets like gold, metals, and copper to the blockchain. Users can trade, sell, and make money for themselves when they use tokenized versions. Oracles are smart contracts that acquire data, information, and external systems from web-based platforms. They then input the precise pricing of these assets into the blockchain, providing the application with more standards.

Regarding the management of assets in the supply chain:

The conventional sense of the term “asset management” is applicable to “decentralized finance” in the same manner. A user has the ability to make investments in a variety of cryptocurrency assets and use a variety of tactics in order to ensure that their portfolio is increasing. The smart contract takes the place of a regular account manager and handles all financial transactions. You are able to liquidate and convert your token into the asset of your choice in the event that you decide you are no longer interested in a certain kind of investment. Because of this, the management of your assets will be simpler and more flexible.


Using smart contracts could be very helpful in a wide range of fields. When things are put together in the form of a smart contract, it may make our jobs and our everyday lives less stressful. When you use them, you put yourself at risk of having problems with the code, like being hacked or the developer not putting the code in the right way. Even though the bad things about smart contracts often outweigh the good things, they are still very important and are needed for the world as it is now to move to the next level of innovation and progress.

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