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What Is a Smart Contract?

What Is a Smart Contract

Smart contracts are digital contracts. They are built upon blockchain.

Blockchain Technology has pretty much taken over our lives. From banking to education, it has found application in every domain. Especially with the arrival of smart contracts, it is becoming even more popular. These digital contracts facilitate easier transactions and reduce dependence on intermediaries. The increasing dependence on the distributed ledger has led to an accelerated adoption of smart contracts.

Just like any other contract, smart contracts regulate the most important aspects of blockchain technology. They are essential for ensuring the healthy functioning of a digital society. Especially in the era of Web 3.0 and Metaverse, smart contracts facilitate safe and secure transactions in an organized manner.  They also make applications more accessible on various platforms. But what exactly is a smart contract? Here, we will address just that.

Defining Smart Contract?

Smart contracts are digital contracts. They are built upon blockchain. They run when certain pre decided conditions are met. They play the crucial role of enabling blockchains to communicate with each other. They facilitate the sharing of information in a smooth and effective manner.

To understand it better, the working definition of a smart contract can be broken down into two components. Firstly, a smart contract is a traditional contract augmented over blockchain. It is complete with all the constituents of a traditional contract such as rights, obligations, counterparties, and considerations which are to be transferred between counterparties. 

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Secondly, smart contracts allow the execution of contractual rights and obligations. They facilitate these exchanges with less human involvement. They automate the process of contract oversight and management. 

To put it simply, smart contracts can automate, if not full. at least some part of the tasks which currently require human oversight. The various terms and conditions of the smart contract are written on the underlying blockchain code. This helps in increasing the underlying integrity of the contract itself. 

How Smart Contracts Work?

A smart contract is basically a cryptographic code. It contains information in the form of metadata. It stores cryptocurrencies and interacts with blockchain as per the underlying terms and conditions. A smart contract is self-executory. 

It means that Smart contracts allow for the execution of trackable and irreversible transactions. They facilitate the conduct of anonymous and disparate agreements in a trusted and transparent manner. They lay the foundation of an organized, credible and reliable financial system.

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Smart contracts are equipped with Turing Complete programming languages. Therefore, they enable multiple parties to engage in direct conversations without intermediaries. Blockchain has the unique ability to capitalize on smart contracts. This makes them the perfect choice for building financial applications. 

What Do You Mean by Smart Contracts are Self-Executory?

The various executory terms of a smart contract are embedded in the lines of codes of the underlying blockchain. Whenever these terms are met, the contract automatically detects it. It then verifies the fulfillment of these terms. Thus, the contract comes into force. It carries out the various functions of the contract.

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The availability of these self-executory contracts has found many applications. It has especially made it possible to build complex payment structures in simple standardized contracts. The payments occurring on these structures have low transaction costs as they are operated and analyzed through computerized systems.

Applications of Smart Contracts in Emerging Technology

Today, smart contracts have found their way in a variety of fields. From healthcare to financial services. They have utility in every domain. For instance, they enable a secure and less risky environment for voting. 

Another usage of smart contracts is in the healthcare system. They allow a safe and simple way to store patient records. In the supply chain sector, smart contracts are used to provide an accessible and secure method for inventory management and the automation of payments and tasks. 

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However, the major application of smart contracts is in the financial sector. Here, they assist in important tasks of error checking, routing, and payment transfers. Furthermore, they incorporate intricate tools for easing the process of bookkeeping and eliminate the possibility of breach in accounting records. They also allow for the shareholders to participate in the decision making process, thus making the system more transparent.

NFTs and Smart Contracts: Blockchain Technology in Gaming

Blockchain and NFT smart contracts are the base for all the play-to-earn games. They facilitate the interactions and exchanges between various players. They enable the existence of an inter-connected virtual world.

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All these principles form the basis of GameFi and SocialFi applications. NFT Smart contracts enable economic benefits to players. An NFT smart contract can be understood as a channel utilized for allowing a transaction between an NFT owner and a buyer. They ensure a risk-free and transparent trading of in-game elements.

Top Smart Contracts

Now that you understand what smart contracts are and how they work, you must be wondering about any smart contract projects that you may want to invest in. Here, we have compiled a list of top smart contracts that might interest you. 

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Ethereum: 

Ethereum is very popular in the world today. It is said to be the best cryptocurrencies and has launched smart contracts on its blockchain. However, this famous cryptocurrency is currently struggling with many shortcomings of its own. These issues will be addressed in a more renewed and efficient version of the crypto, known as ETH 2.0. Until the new version is launched, the existing cryptocurrency provides a big opportunity for its competitors to start developing advanced smart contracts.

Polkadot:

Polkadot is well-known for its speed. However, speed is not the only thing that it promises. The innovative platform is well-known for its interoperability. It employs parachains, running parallel to the main blockchain. This is what allows for faster processing of transactions. However, it is to be noted here that on DOT, smart contracts run on parachains and not on the main blockchain. 

Solana:

Solana is known to be the fastest existing cryptocurrency on the block. It comes with a capacity of facilitating 50,000 transactions every second. It is no doubt that investors are attracted to SOL. There are many lucrative benefits attached to the crypto. Firstly, it employs the proof-of-history consensus algorithm, meaning that it can process transactions even faster. SOL has quickly grabbed numerous blockchain projects and has to its name more than 400 projects.

Algorand:

Algorand is a blockchain based decentralized and self-sustaining network that supports and integrates various types of applications on its network. What’s even more interesting is the fact that it is a relatively new smart contract platforms and yet promises low costs, high scalability, and fast speed, without compromising on the security of data.

Avalanche:

Avalanche is one of the rising stars of the crypto industry. If we talk about the time-to-finality, then this innovative project is currently the fastest smart contracts platform in the blockchain industry. The innovative platform is extremely agile and comes with low transaction fees. It is also very environmentally sustainable. The AVAX token on the blockchain smart contract is hard-capped. It can be utilized as a payment conducting model.

Cosmos:

Cosmos is one of the mot popular blockchain smart contract. It majorly focuses on the interoperability features. This ensures different blockchains can interact with each other. Cosmos projects itself as a platform that is capable of solving some of the hardest problems surrounding the blockchain industry. Its other areas of concern consist of making blockchain technology less complex. It is concerned with making it easier for developers to build decentralized frameworks on blockchain.

Takeaway

Smart contracts are digital contracts encoded on blockchain. They facilitate easier, transparent and more accountable transactions. They automate exchanges as they automatically enforce themselves when certain pre-determined conditions are met. Today, smart contracts have found an application in many fields such as finance, governance, healthcare, etc. This is because smart contracts provide a trackable and secure system of exchanges. Some of the most popular smart contract projects are Avalanche, Cosmos, Solana, etc. It is a promising new market for tech enthusiasts.

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