What is a Smart Contract

Smart contracts are programs deployed on blockchain networks. When preset conditions are met, smart contracts automatically execute. For example, Bob uses a smart contract to create a trust fund for his daughter Alice. The fund remains locked until Alice turns 18, and when she reaches 18, the fund will automatically unlock and transfer to Alice’s account without manual intervention.

The term “smart contract” was first proposed by American computer scientist Nick Szabo in 1994. Szabo wrote: “A smart contract is a computerized transaction protocol that executes the terms of a contract. The goal of smart contract design is to satisfy common contractual conditions, minimize exceptions and malicious interference, and reduce the need for trusted intermediaries.”

Bitcoin is the first blockchain to technically implement smart contracts (Source: Gemini). It allows developers to set conditions for transaction execution. For example, a multi-signature transaction requires signatures from a certain number of addresses before it can be executed. However, due to limitations of Bitcoin’s scripting language, it only supports simple smart contracts.

In 2015, Ethereum launched, promoting widespread use of smart contracts. Ethereum’s programming language Solidity supports complex smart contracts, enabling the development of various decentralized applications. As blockchain popularity skyrockets, technology continues to evolve. Today, smart contract platforms flourish, led by Ethereum, with many other platforms emerging. Common smart contract platforms include BNB Chain, Solana, Avalanche, Aptos, Sui, Arbitrum, Optimism, zkSync, and others.

What are the features of smart contracts?

Smart contracts are built on blockchain platforms, so they inherit core blockchain features such as decentralization, tamper-resistance, and transparency. Additionally, smart contracts have two notable features: predictability and trustlessness.

Predictability

Smart contracts are automated code that strictly follows an “if… then…” logic. For example, if Alice turns 18, then the trust fund will automatically transfer to Alice’s account. For smart contracts, specific inputs can only produce one fixed and known outcome. Therefore, people can infer what result will be output by examining the contract’s logic.

Trustlessness

Smart contracts are similar to traditional contracts, as they specify the terms of an agreement. But unlike traditional contracts, their execution does not depend on legal clauses. They are self-executing computer code that follows preset rules. As a result, executing smart contracts does not require trusting the counterparty or seeking third-party assistance (such as lawyers).

What are the use cases of smart contracts?

Currently, smart contracts are mainly used in the development of decentralized applications. Their applications are already very broad, ranging from simple transaction payments to building more complex financial products, or being applied in traditional industries to solve some of their problems.

DeFi: Through smart contracts, developers can transfer traditional financial products and services onto the blockchain, such as lending, exchanges, insurance, options, and more. With blockchain technology, these financial products can operate in a more transparent environment without intermediaries.

Art Trading: Smart contracts enable artists to mint their digital collectibles as NFTs. Ownership and transaction information of these collectibles are recorded on the blockchain, making them transparent and tamper-proof. Smart contracts can also help creators better manage copyright.

Supply Chain Management: Smart contracts can be used to automate tracking of goods throughout the supply chain, from manufacturing to storage and delivery, ensuring transparency and accountability. **$FIL **