What is a smart contract?

Smart contracts on the blockchain are a series of automated processes and functions that have predetermined responses depending on user interaction

Blockchain technology is a broad, complex and multi-faceted term that underpins the cryptocurrency industry. One of the key components of several leading blockchain projects is smart contracts, which offers users and developers a way to automate a series of procceses and functions.

Smart contracts are programs on the blockchain that function when predetermined conditions are met. Notable smart contract platforms include Ethereum, Cardano, Polkadot and IOTA, all of which have a shared goal of ensuring transactions and functions are processed rapidly, without the need of an intermediary.

The motive behind smart contracts was to create an automated workflow that triggers the subsequent action without needing manual intervention or human interaction. This creates an element of trust between two parties, as the resulting function is always predetermined.

Smart contracts were first discussed in 1994 by controversial cypher-punk Nick Szabo, who also was rumoured to be the person behind the Satoshi Nakamoto pseudonym.

Since then, Bitcoin was created in 2010 which paved the way for the altcoins like Ethereum.

Ethereum was the first notable smart contract platform having raised $2.2 million through an ICO in 2014.

Seven years later, use of the Ethereum network is widespread as a result of the boom in DeFi (Decentralised Finance) and NFTs (Non-fungible tokens).

Now, users can interact with Ethereum smart contracts via hundreds of DeFi platforms like Aave, Yearn Finance and Compound as well as NFT marketplaces like OpenSea.

Users can stake ETH or erc-20 tokens into these smart contracts in order to earn a yield. Yields are generated through an automated process that invovles lending tokens out to other parties who wish to take out leverage on their crypto holdings.

Currently, there is more than $105 billion in locked erc-20 tokens across the Ethereum blockchain, with volume steadily rising across other platforms like Cardano, Polkadot and Solana as well.

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Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.

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