You may have heard the term smart contract a lot these days. In this article, we are going to look at smart contracts in the blockchain context in simple language. So stay tuned to Wironal until the end.
A smart contract, like any contract, sets the terms of an agreement. But unlike traditional contracts, smart contract terms are executed as code on a blockchain such as Atrium. Smart contracts allow developers to take advantage of blockchain benefits such as high security, performance assurance, and accessibility in building applications as long as they use peer-to-peer protocols in applications such as lending, insurance, logistics, and gaming.
As with any contract, smart contracts specify the terms of an agreement or transaction. What makes smart contracts “smart”, however, is that these terms are created and executed as code that runs on a blockchain, rather than written on paper. Smart contracts extend the core idea behind Bitcoin, sending and receiving money without a “trusted intermediary” like a bank, to allow automation and secure decentralization of almost any transaction, no matter how complex. . Because they run on a blockchain like Atrium, they offer security, reliability and unlimited access.
Why are smart contracts important?
Smart contracts allow developers to build a wide range of decentralized applications and tokens. They are used in everything from new financial instruments to logistics and gaming and are stored on a blockchain like any other cryptocurrency transaction. Once a smart contract application is added to the blockchain, it generally cannot be reversed or changed (although there are exceptions).
Smart contract-based programs are often referred to as “decentralized programs” or “dapps”, which include decentralized finance (or Defi) programs that aim to change the banking industry. Defi programs allow digital asset holders to engage in a variety of financial transactions such as savings, loans, insurance, etc., without involving a bank or other financial institution anywhere in the world. The following are some of the most popular current smart contract applications.
Uniswap – A decentralized exchange that allows users to trade certain types of digital currencies through a smart contract without any central reference for determining the exchange rate.
Compound – is a platform that uses smart contracts to allow investors to make a profit and borrowers to receive loans immediately without the need to go to an intermediary bank.
USDC – A digital currency that attaches to the US dollar via a smart contract and a USDC is worth one US dollar. UDDC is part of a newer category of digital money known as StableCoin.
The question is, how do we use these smart contract-based tools? Imagine you have some atrium that you want to trade with the USDC. You can put some Atrium on Uniswap, which, through a smart contract, can automatically find the best exchange rate for you, make the deal, and send you your USDC. You can then put some of your USDC in Compound to lend to others and receive the algorithmically set interest rate. All this is done using smart contracts without the intervention of a third party such as banks and traditional exchanges.
In traditional finance, exchanging currencies is costly and time-consuming, and it is not easy or safe for people to lend their cash assets to strangers on the other side of the world. But smart contracts make both scenarios and a wide range of scenarios possible.
How Do Smart Contracts Work?
Smart contracts were first proposed in the 1990s by a lawyer and computer scientist named Nick Sabo. Sabo is known for comparing a smart contract to a vending machine. Imagine, for example, a machine that delivers you a can of soda for a dollar. This is a simple example of a smart contract. Just as a beverage machine can automate sales without human intervention, smart contracts can automate almost any type of transaction for you.
Atrium is currently the most popular smart contract platform, but many other digital currency blockchains (including EOS, Neo, Tezos, Tron, Polkadot, and Algorand) can execute them. A smart contract can be created by anyone and placed in a blockchain. Their code is transparent and publicly verifiable, meaning that any reviewer can see what logic a smart contract follows when receiving digital assets.
- Smart contracts are written in programming languages (including Solidity, Web Assembly, and Michelson). In the Atrium network, the code of each smart contract is stored on the blockchain, allowing each reviewer to check the contract code and its current status to verify its performance.
- Each computer on the network (or node) stores a copy of all existing smart contracts and their current status along with blockchain and transaction data.
- When an intelligent contract receives an asset from a user, its code is executed by all network nodes to agree on the outcome and value flow of the resulting product. This is what allows smart contracts to be executed securely without any central authority, even when users are engaged in complex financial transactions with anonymous entities.
- To run a smart contract on the Atrium network, you generally have to pay a fee called “Gas”. (Because these fees keep the blockchain blockchain active)
- Once established in the blockchain, smart contracts can generally not be changed, even by their manufacturer. (There are exceptions to this rule.) This makes the security of these contracts very high and can not be taken out of reach by any institution.