Cointelegraph explains what smart contracts are and how this blockchain-based technology changes the way transactions are made.
Cointelegraph’s Jackson DuMont tackles smart contracts in the latest episode of Cryptopedia. He explains how smart contracts work from the basics and provides examples of how they can be utilized in real-world scenarios.
DuMont describes smart contracts as code within the blockchain that “execute when specific conditions are met.” They are self-executing contracts built on blockchain technology and have the power to complete transactions without middlemen.
As an example, DuMont explained the difference between transacting in a centralized exchange like Binance and doing the same transactions with a decentralized exchange (DEX) like Uniswap, which is powered by smart contracts.
With Binance, a user has to believe that Binance will complete their transaction, and the execution of the transaction relies on the user’s trust in the third party, which in this case is Binance. On the other hand, DuMont explains that:
“Smart contracts eliminate the need for a middleman because instead of being run on a company server, they’re run on a decentralized blockchain network.”
Related: Cryptopedia: Learn about Web3 and how it aims to transform internet services
This means that the chances of a smart contract being executed are higher, as the network is not controlled by a single company. Instead, a blockchain network is run by various anonymous nodes distributed throughout the world.
“If you want to interact with someone else through a smart contract, you don’t have to know who they are. You don’t even have to trust them.”
Simply put, nodes are tiny servers that ping each other constantly to make sure that the data within the blockchain is coherent with each other. This includes smart contracts, which are “replicated and distributed to all nodes in the network,” explained DuMont.
Lastly, DuMont explains that there are many use cases for smart contracts within various sectors like investing, gaming, voting, crowdfunding payments, insurance, and more. DuMont notes that applications for smart contracts are limited only by people’s creativity.
2021, Crodl - Discord Trading Community - Not Financial Advisors