What is a smart contract?

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What is a smart contract?

A smart contract, like any contract, establishes the terms of an agreement. But unlike a traditional contract, a smart contract’s terms are executed as code running on a blockchain like Ethereum. Smart contracts allow developers to build apps that take advantage of blockchain security, reliability, and accessibility while offering sophisticated peer-to-peer functionality — everything from loans and insurance to logistics and gaming.

Smart contracts allow developers to build a wide variety of decentralized apps and tokens. They’re used in everything from new financial tools to logistics and game experiences, and they’re stored on a blockchain like any other crypto transaction. Once a smart-contract app has been added to the blockchain, it generally can’t be reversed or changed (although there are some exceptions).

Smart-contract-powered apps are often referred to as “decentralized applications” or “dapps” – and they include decentralized finance (or DeFi) tech that aims to transform the banking industry. DeFi apps allow cryptocurrency holders to engage in complex financial transactions — saving, loans, insurance — without a bank or other financial institution taking a cut and from anywhere in the world. Some of the more popular current smart-contract powered applications include:

  • Uniswap: A decentralized exchange that allows users, via smart contract, to trade certain kinds of crypto without any central authority setting the exchange rates.

  • Compound: A platform that uses smart contracts to let investors earn interest and borrowers to instantly get a loan without the need for a bank in the middle.

  • USDC: A cryptocurrency that is pegged via smart contract to the US dollar, making one USDC worth one U.S. dollar. UDDC is part of a newer category of digital money known as stablecoins.

Developers can use smart contracts to create a wide variety of decentralized apps and tokens. They’re used in everything from new financial tools to logistics and game experiences, and they’re stored on a blockchain just like any other cryptocurrency transaction. Once a smart-contract app is added to the blockchain, it cannot usually be changed or reversed (although there are some exceptions).

Smart-contract-powered apps are known as “decentralized applications” or “dapps,” and they include decentralized finance (or DeFi) technology, which aims to transform the banking industry. DeFi apps enable cryptocurrency holders to conduct complex financial transactions — such as saving, loans, and insurance — without the involvement of a bank or other financial institution, and from anywhere in the world. Some of the more popular smart-contract-powered applications available today…

  • Uniswap: A decentralized exchange that allows users, via smart contract, to trade certain kinds of crypto without any central authority setting the exchange rates.

  • Compound: A platform that uses smart contracts to let investors earn interest and borrowers to instantly get a loan without the need for a bank in the middle.

  • USDC: A cryptocurrency that is pegged via smart contract to the US dollar, making one USDC worth one U.S. dollar. UDDC is part of a newer category of digital money known as stablecoins.

So, how would you put these smart contract-enabled tools to use? Assume you have some Ethereum that you want to trade for USDC. You could put some Ethereum into Uniswap, which will automatically find the best exchange rate, make the trade, and send you your USDC via smart contract. You could then invest some of your USDC in Compound to lend to others and earn an algorithmically determined interest rate — all without using a bank or other financial institution.

Swapping currencies in traditional finance is costly and time consuming. Individuals lending their liquid assets to strangers on the other side of the world are not easy or secure. However, smart contracts enable both of these scenarios, as well as a wide range of others.

Source: coinbase.com

Nimesh Asked question September 1, 2022
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