A Smart Contract is a coded set of instructions that executes a predefined function when specific conditions are met. It serves as a fundamental element of the Ethereum Blockchain and other Layer-2 blockchains. The phrase “when certain conditions are met” states that smart contracts operate based on the principles of conditional logic, expressed through “IF” and “THEN” statements.

Here’s an example:

Consider the scenario of Paul and Peter whereby both are watching a live football game, each rooting for different teams. At halftime, they strike a deal that the supporter of the winning team will receive $10 from the other. At the end of the match, Paul’s team emerges victorious, prompting Peter to hand over a $10 bill to Paul.

In this instance, the initial condition – the “IF” – is their mutual agreement, while the subsequent action – the “THEN” – involves Peter giving Paul the $10 note.

Smart Contracts fundamentally address the realm of predictable outcomes.


Why Smart Contracts?

Before Smart Contracts were introduced by Nick Szabo, agreements between two parties required the involvement of a third party. This approach demanded a third party’s presence to oversee with agreed-upon terms.

This has had its own shortcomings, such as:

1. Unpredictable Outcomes: Instances exist where the involvement of a third party, such as a judge in a legal case, might lead to inconsistent rulings, undermining the agreement’s confirmation.

2. Lack of Trust: In the earlier mentioned scenario, there’s a potential for Peter to refuse on giving Paul the $10 note, while an external entity might claim the game was unfair, regardless of all odds.

However, the introduction of Smart Contracts aimed to bring about:

1. Predictable Outcomes: With Smart Contracts, once a code is programmed, it adheres strictly to its programmed logic. This ensures consistent outcomes and provides users with a transparent and impartial view of the blockchain system, enhancing trust.

2. Trustworthiness: Smart Contracts often adopt an open-source format, enabling users to scrutinize and verify the code and its potential outcomes before committing to the contract.

3. Efficiency and Automation: Unlike traditional methods involving human or third-party intermediaries, Smart Contracts streamline processes by automating execution. This eliminates the need for negotiations and minimizes the time spent waiting for predicted outcomes.

In real life use cases, Smart Contracts can be programmed to:

– Interact with other smart contracts.

– Create cryptocurrencies.

– Verify transactions.

– Mint NFTs (Non-Fungible Tokens).

– Enhance security for users of Smart Wallets.

– Develop decentralized applications for specific use cases.

To deepen your understanding of how Smart Contracts function, you can check out our article on Blockchain.

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1 Comment

  • Hamzat Musliu Olawale
    Posted October 24, 2023 at 7:57 am 0Likes

    These are nice articles, will surely be checking up here most often.

    Keep us posted with latest articles in the Crypto space 🚀

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