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Smart contracts are programs that run when specific conditions are met and are stored on a blockchain. They are used to automate the execution of a contract so that all players can be certain of a quick conclusion without the intervention of an intermediary.
Smart contracts serve as digital agreements that enable the exchange of cryptocurrencies between two parties. These contracts use lines of code to verify and enforce the terms of the agreement, automatically distributing assets when the criteria are met.
Essentially, smart contracts are coded instructions that execute a specific task once predetermined conditions are satisfied, often relying on "if...then..." statements to ensure predictable outcomes.
Although smart contracts became popular in the context of cryptocurrencies, the concept was initially defined by American cryptographer Nick Szabo, several years before Bitcoin was created.
Smart contracts operate in the background of many consumer crypto products, so if you're doing anything other than buying and holding cryptocurrencies, you've probably used them. NFTs, decentralized exchanges, and stablecoins are all examples of smart contract applications.
Smart contracts are a characteristic of second-generation cryptocurrencies, particularly Ethereum, which popularized the idea when it debuted in 2015. In general, Bitcoin and other previous cryptocurrency blockchains do not enable complex smart contracts.
Assume you want to trade one type of cryptocurrency for another and you find someone willing to do it. But you don't know this person and you want to be sure that when you send them cryptocurrency, they will keep their end of the deal.
You and another user might create a smart contract that ensures the transaction will not take place unless both of you are paid. It could work something like this:
Smart Contract blockchains offer numerous advantages, including increased speed, efficiency, accuracy, transparency, security, and cost savings. They also save time and money in many commercial procedures by eliminating the need for brokers or other intermediaries to ratify previously signed legal contracts. Automated agreements reduce the likelihood of manipulation by a third party.
Additionally, blockchain technology duplicates all papers numerous times, allowing for the restoration of the originals in the event of data loss. Smart contracts are encrypted, prohibiting unauthorized access to all papers. Finally, smart contracts prevent errors caused by manually filling out various forms.
Any smart contract on a blockchain is limited to the information contained in blockchain records, which typically include data on the circulation of a particular coin and related assets. However, if there is no mechanism to reliably input mutually verified information about real-world events, a smart contract would be useless in a dispute over whether a project was satisfactorily completed.
In such cases, a third party would be required to give permission for the computer software to release funds. To address this issue, blockchain developers have introduced the concept of an "oracle", which can feed external data into a blockchain system.
Despite their potential, smart contracts are not without limitations. For example, they cannot obtain information about real-world events or send HTTP queries, as doing so would compromise consensus, which is essential for security and decentralization.
Additionally, since smart contracts are programmed manually, they are susceptible to human error, which can result in vulnerabilities and exploits. A notable example of this is the 2016 attack on the Ethereum Decentralized Autonomous Organization (DAO), in which hackers exploited a flaw in the organization's fundraising smart contract to siphon funds from the initiative.
Blockchain is a continually growing digital database. A list like this is composed of numerous data blocks that are organized chronologically, linked, and protected by cryptographic proofs.
Non fungible tokens (NFTs) are cryptographic tokens that represent a unique digital or physical asset. Within a blockchain network, they serve as verifiable proofs of ownership.
One of the most exciting developments in modern technology is the rise of smart contracts. These contracts allow you to integrate your applications with blockchain technology, giving you access to a powerful tool for...
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