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What are Smart Contracts?

Smart contracts are computer software programs that perform a set of actions automatically when certain conditions are met.

What are smart contracts?
Smart contracts are computer software programs that perform a set of actions automatically when certain conditions are met. For example, if a seller shows the proof of delivery of a product, the smart contract will then automatically make the payment to the seller. Just like regular contracts, smart contracts are designed to enforce the terms of an agreement.
There are no middlemen who hold your information. The blockchain(such as Ethereum) holds the information and verifies it. In other words, the smart contract removes the need to trust any intermediary for carrying out any transaction.

What are the advantages of using smart contracts?

  • Security: Since smart contracts use cryptography, it is practically impossible for any third-party to alter any information in the contract.
  • Transparency: You can view smart contracts on a blockchain and figure out what they are used for.
  • No intermediaries: There is no need for any middlemen
  • Autonomous transactions: Smart contracts will work automatically; there is no need for any intermediary to push a button to make something happen.
  • Accuracy: Since smart contracts are made up of software code, there is no ambiguity in the interpretation of the content of the contracts.

Origin of smart contracts
Nick Szabo coined the term smart contract in an academic paper. Ethereum made possible the introduction of smart contracts by implementing a language on its blockchain. Smart contracts are used by decentralized applications or dapps. Usually, several smart contracts are chained together to create a dapp.

What are decentralized apps?
Decentralized apps or DApps are applications that bundle a set of smart contracts into applications that people can easily interact with. For example, MakerDAO helps you borrow or lend cryptocurrencies without the need for any intermediary or central authority like a bank. Smart contracts power the dapps and a whole new branch of financial services industry called ‘Decentralized Finance (DeFi) has arisen based on this technology. DeFi protocols such as Compound, Aave and Uniswap are good examples of this.

Issues with smart contracts
There are a few downsides to smart contracts because they are still quite new and developers are still perfecting the technology. Bad code on smart contracts can make them ineffective and also vulnerable to attacks. Also, since the code is unalterable on a blockchain, this security risks for faulty code increases, leading to exploitation by hackers.

Future of smart contracts
These are still early days of smart contracts and dapps. Several companies and even governments are experimenting with this technology for various applications. A whole lot of applications in the area of financial services and insurance, digital storage,supply chain management and governance are being developed.

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