What is a smart contract?

Smart contract

Definition

Like any contract, a smart contract spells out the terms of an agreement. But unlike a traditional contract, the terms of a smart contract are enforced as code running on a blockchain like Ethereum. Smart contracts allow developers to Build a cross chain bridge applications that take advantage of blockchain’s security, reliability, and accessibility, and offer sophisticated peer-to-peer functionality, ranging from loans to insurance to logistics. and video games.

Like all contracts, smart contracts define the terms of an agreement or transaction. However, what makes them “smart” is that the terms are drawn up and signed as code running on a blockchain, rather than on paper lying around a lawyer’s desk. Smart contracts build on the basic concept of Bitcoin (sending and receiving money without a trusted intermediary, for example) to automate and decentralize almost all types of operations or transactions, regardless of their degree of security. complexity. And since they run on a blockchain such as Ethereum, they guarantee security , reliability and accessibility without borders.

Why are smart contracts important?
Smart contracts allow developers to create a wide variety of decentralized applications and tokens. They are used in all fields, from finance (for the creation of new financial tools) to logistics and video games. They are stored on a blockchain like any other crypto transaction. Once added to the blockchain, a smart contract application generally cannot be undone or modified (with rare exceptions).

Applications powered by smart contracts are often referred to as “decentralized applications” or “DApps” and encompass decentralized finance (or DeFi) technologies that aim to transform the banking industry. Decentralized finance applications allow cryptocurrency holders to engage in complex financial transactions (savings, loans, insurance) without a banking or financial intermediary, Cross chain bridge development wherever they are. Some of the most popular smart contract-based applications include:

Uniswap: decentralized exchange platform that allows users, via a smart contract, to exchange certain types of cryptocurrencies without fixing the exchange rate by a central authority.

Compound: platform based on smart contracts that allows investors to earn interest and borrowers to obtain a loan directly without going through a bank.

USDC: A cryptocurrency linked by smart contract to the US dollar, which gives USDC the value of one US dollar. USDC is part of a new category of digital currency known as stablecoins .

So, how to use this type of tools related to smart contracts? Imagine: you hold ethers and you want to exchange them for USDC. You can deposit ether in Uniswap, which, through a smart contract, will automatically find the best exchange rate, make the exchange, and transfer your USDC to you. You can then place part of your USDC in Compound: they will be loaned to other users and you will receive interest at an algorithmically determined rate, without going through a bank or other financial institution.

In the traditional financial sector, exchanging currencies is expensive and time-consuming. And for individuals, lending liquid assets to strangers on the other side of the world is complex and risky. But smart contracts enable both of these scenarios, and many more.

How do smart contracts work?
Ethereum is currently the most widely used platform for smart contracts, but smart contracts are executable on many other blockchains in the cryptocurrency space (including EOS, Neo, Tezos, Tron, Polkadot, and Algorand). The creation and deployment of a smart contract on a blockchain is accessible to everyone. Its code is transparent and publicly available, meaning any interested party can see precisely what logic the Bridge Smart Contract Development Services follows when receiving digital assets.

Smart contracts are written in various programming languages (including Solidity, Web Assembly, and Michelson). On the Ethereum network, the code for each smart contract is stored on the blockchain. Any interested party can therefore consult the code of the contract and its current state to verify its operation.

Each computer on the network (or “node”) stores a copy of all active smart contracts and their current state, along with blockchain and transaction data.

When a smart contract receives funds from a user, its code is executed by all nodes in the network to reach consensus on the outcome and the resulting stream of value. This is what allows smart contracts to operate securely without any central authority, even in complex financial transactions with unknown entities.

The execution of a smart contract on the Ethereum network generally requires the payment of a fee called “gas” (so named because this fee allows the blockchain to operate).

Once deployed on a blockchain, smart contracts generally cannot be modified, even by their creator. (There are exceptions to this rule, however.) This restriction helps to ensure that the contract will not be closed or censored.