As blockchain technology has evolved from the original Bitcoin protocol, new features and capabilities have been added to the underlying code. One such feature is the crypto smart contract.
A smart contract is a computer protocol or program that automatically executes, verifies, and enforces the terms of a contract agreement. This means that once the conditions of the contract are met, the contract will execute itself without the need for any third-party involvement.
This might not sound like much, but it opens up a whole new world of possibilities for how we can interact with each other and conduct business. They also act as the building block for Ethereum applications. However, cryptocurrencies with smart contracts are not limited to just the Ethereum blockchain.
So, what is a crypto smart contract? Read on to learn how this new technology is being used in the world of cryptocurrency.
How do Smart Contracts Work?
Smart contracts are essentially self-executing transactions that are recorded on a blockchain. This means that once the conditions of the contract are met, the contract will execute itself without the need for any third-party involvement.
For example, let’s say you wanted to buy a car from someone. You could use a smart contract to automate the transaction.
You and the seller would agree to the terms of the contract, which would be encoded into a piece of software. Once the contract was created, it would be stored on a blockchain.
The contract would include conditions such as what price you agreed to pay for the car, when the payment would be made, and what would happen if either party failed to uphold their end of the agreement.
Once the conditions of the contract were met, the contract would execute itself and transfer ownership of the car to you without the need for a third party like a dealership or bank.
Why are Smart Contracts Important?
The example above is a very basic instance of how a smart contract works, but the concept can be applied to an unlimited number of applications. By automating the ‘if x, then y’ logic of a contract, smart contracts bring advanced functionality to blockchain technology, and have the potential to revolutionize the way we interact with each other.
If you’ve been involved in cryptocurrency at all in recent years, you’ve probably come across the term ‘decentralized finance’. DeFi, as it’s commonly called, is a growing movement that is using smart contracts to build new financial applications on blockchain technology.
Some of the most popular DeFi applications include decentralized exchanges, synthetic assets, and lending platforms. These applications are providing users with alternatives to traditional financial products and services, and are completely powered by smart contracts.
For example, a decentralized exchange is a platform that allows users to trade cryptocurrency without the need for a centralized third party like an exchange. These platforms use smart contracts to match buyers and sellers, and to execute trades.
DeFi applications are just one way that smart contracts are being used in cryptocurrency. With the introduction of new protocols and platforms, the number of ways that smart contracts can be used is only limited by our imagination.
Are Smart Contracts Secure?
Like any new technology, smart contracts are not without their risks. One of the most notable risks is the potential for errors in the contract code.
Since smart contracts are self-executing, once they are deployed to a blockchain they cannot be altered. This means that if there is an error in the contract code, it cannot be fixed.
For example, in 2016, a decentralized autonomous organization (DAO) known as “The DAO” was created on the Ethereum blockchain. “The DAO” was effectively a decentralized venture capital fund that allowed users to invest in Ethereum-based projects.
Unfortunately, due to an error in the contract code, hackers were able to exploit The DAO and steal $50 million worth of ETH from the platform. The incident resulted in a hard fork of the Ethereum blockchain, and The DAO was effectively shut down.
While this incident was a major setback for Ethereum, it also served as a valuable lesson. Since then, the Ethereum community has made great strides in improving the security of smart contracts.
Despite the risks, smart contracts have the potential to change the way we interact with each other, and to create a more secure and efficient world.
Smart Contract Cryptocurrency List
Here are some of the most popular cryptocurrencies that utilize smart contracts for settling agreements in decentralized finance (DeFi):
- Ethereum (ETH)
- Solana (SOL)
- Cardano (ADA)
- Avalanche (AVAX)
- Polygon (MATIC)
- Binance Coin (BNB)
- Polkadot (DOT)
- NEAR Protocol (NEAR)
- Algorand (ALGO)
Understanding Smart Contracts with FTT DAO
Smart contracts are a powerful tool that have opened up a new world of possibilities for blockchain technology. As the internet evolves into a more decentralized, trustless space, we can expect to see smart contracts play a major role in our daily lives.
If you’re interested in learning more about how smart contracts work or want to get involved with the growing DeFi movement, be sure to check back with the FTT DAO blog regularly.
To stay up to date with the latest cryptocurrency industry news and updates, follow the FTT DAO on Twitter.