Smart Contracts Explained – What are Smart Contracts?

Nowadays, news about cryptocurrencies and blockchain have become commonplace. As such, cryptocurrencies like Bitcoin and protocols like Ethereum are not just for techies anymore. Rather, they are transforming money and economics as we know it through the advent of DeFi, and are becoming a bigger part of the mainstream finance discussion. Nevertheless, many are still unfamiliar with the technology underpinning these innovations – so-called “smart contracts”. This is why you should get to know more about smart contracts, Ethereum smart contracts in particular, and ask questions like “what is a smart contract?”. Smart contracts are crucial when you build dApps and DeFi apps, which is most easily done with Moralis!

Blockchain technology has a number of practical implementations – in the form of cryptocurrencies, decentralized applications, and decentralized finance. As a result, financial markets today are rife with blockchain technology and smart contracts. However, blockchain inventions such as DeFi or decentralized finance operate on the other end of the spectrum from cryptocurrencies, and attempt to decouple users from the legacy financial system altogether. As such, smart contracts are emerging as the heart of a new decentralized financial system. The easiest way, by far, to build dApps and DeFi applications with smart contracts is by signing up for Moralis!

What’s more decentralized applications are taking the world by storm. These new kinds of apps run on decentralized open-source blockchains that use a network’s computing power instead of relying on centralized servers. Smart contracts and dApps are fundamentally connected. You need knowledge of Ethereum smart contracts to build dApps. This is all part of the smart contract ecosystem that we are about to explore on the way to answering the question “What are smart contracts?”.

What are Smart Contracts?

If you are new to crypto and blockchain, you are going to ask the question, “What is a smart contract?” sometime in your journey. This intro to smart contracts for beginners will help you understand how things work in this brave new world of Solidity programming, Ethereum, and decentralized financial ecosystems. It will help you grasp the basics of “what is a smart contract” and apply this new principle in your blockchain education. 

If you are an aspiring blockchain developer who wants to work further with Web3, dApps, and DeFi, you will enjoy this article as a quick introduction to smart contracts. 

For the advanced developers who are already active in the blockchain industry, you will be happy to know that there are innovative new platforms that can help you accelerate your timelines and make smart contract development a lot easier. Moralis is your new route to creating amazing dApps in a flash. How does Moralis help you expedite your timeline without compromising on the quality of your dApps? It helps you focus on your frontend work—on crafting great UX/UI that attracts users—while avoiding the tedious tasks of Web3 backend setup and management. Moralis has numerous resources that help you to quickly create your dApp using Moralis and Web3.js:

Smart Contracts for Beginners

For a beginner trying to answer the question “What is a smart contract?”, it helps to think of Ethereum smart contracts in a conceptual manner rather than in a technical way, or as lines of code. The concept-first understanding of Ethereum smart contracts helps you understand them at their foundations, which are a lot simpler than you think. At their very essence, smart contracts are simply codified agreements between parties. 

One way to teach smart contracts for beginners is to illustrate real-world examples. If you have agreed with a friend, client, or business partner, then you already understand the principles behind a smart contract. Real-life contracts have been agreed upon since time immemorial. The only difference between smart contracts and the paper and verbal contracts we traditionally engage in is that, instead of paper records, they are established as code on a blockchain.

In other words, the idea behind a smart contract is as old as time itself. “Smart contracts for beginners” courses should start with this basic principle. It is the execution that differs. Making sure that agreements are executed on the internet securely and faithfully to their terms, even if the agreeing parties do not know each other, is the job of Ethereum smart contracts. 

What is a Smart Contract – Origins

Where did the idea start exactly? This is one of the questions you might ask after “what are smart contracts?”. The answer is an interesting history lesson that starts well before the release of Bitcoin and other cryptocurrencies. Nick Szabo, a computer scientist and polymath, first coined the term “smart contract”, which he defined as “a set of promises, specified in digital form, including protocols within which the parties perform on the other promises”. Such contracts could be created and executed without the use of AI or artificial intelligence. He originated the idea in 1995, and his article on smart contracts was published in a magazine called Extropy in 1996. Szabo essentially first defined “what is a smart contract?” and proposed various scenarios for their use. 

Bitcoin, whose whitepaper was released in 2008, is the first demonstrable form and earliest successful execution of a smart contract on a blockchain, albeit one of limited scope. Bitcoin purposely uses a simplified smart contract to eliminate security threats to its system. Regarded primarily as a payment method or electronic money, Bitcoin applied smart contracts to be within the parameters of its blockchain’s primary design as currency. Bitcoin is a great way to start when you want to learn “smart contracts for beginners”. It is a fundamental introduction to the larger scope of the Ethereum protocol as well. 

After Bitcoin, other protocols expanded on the idea and applications of smart contracts. Ethereum was the first to do this. Ethereum demonstrated to the world that smart contracts could be applied to innumerable use cases.

Ethereum Smart Contracts

If you’re curious about Ethereum and are asking “What are smart contracts?” in relation to the Ethereum protocol, well, you can think of both as parts that are integral to each other. Ethereum was ambitiously designed to be a “world computer”. What would building a world computer entail? It requires using the computing power of all Ethereum nodes, which can be run by anyone anywhere in the world voluntarily.

So, why join the network? Many benefits can be derived by joining Ethereum’s network, the main one being the ability to transact in a trustless manner with anyone else in the world through the blockchain. This introduces so many possibilities not just in finance but in all sorts of contracts—meaning, anything that involves human agreement could potentially be translated into a smart contract on the Ethereum blockchain. To be able to participate in the network it helps to have knowledge of smart contracts for beginners and also try to run your own Ethereum node. 

Smart contracts run on the Ethereum Virtual Machine or EVM, a Turing-complete digital apparatus that allows you to select from a large number of actions on a table and execute them on a network protocol. This is a truly unique and unprecedented invention that has opened the doors to blockchain innovation. The question “what is a smart contract?” is, therefore, partly answered by the incredible interactions and transactions conducted through the EVM.

To create incentives in the network, participants will have to pay transaction fees, otherwise known as gas fees, to execute any smart contract code. Gas fees are based on the amount of computing power required and to be lent by nodes. A fee market is created, and this is the current structure by which node operators earn.

Coding Smart Contracts

What are smart contracts on Ethereum? Ethereum smart contracts are created using Solidity, the primary coding language of Ethereum. Unlike other programming languages, which are object-oriented, Solidity is contract-oriented. It is a high-level language that is suited for its use, which is to mimic how humans express instructions. The language is very similar to JavaScript.

It is statistically typed and provides support for inheritance, libraries, and complex user-defined features. When you want to answer the question “what is a smart contract?” you will encounter Solidity and its use.

What is a Smart Contract in Solidity?

Solidity smart contracts are smart contracts programmed in the Solidity language and are compiled to the bytecode of the Ethereum Virtual Machine or EVM. Solidity is the key language that you need to learn when you code for Ethereum.

If you still need more detailed explanations or want to learn more about how to code smart contracts on Solidity, you can visit Ivan on Tech Academy and browse through its easy-to-learn courses on Ethereum smart contract programming.

Smart Contract Uses

Smart contract applications are almost endless. Besides the basic function of letting you send, hold, or receive cryptocurrency on Ethereum, they can be used for the following:

  • Token and securities creation
  • Digital identity
  • Recording of financial data
  • Insurance
  • Escrow mechanisms
  • Financial services like mortgages
  • Governance or public systems
  • Trading
  • Medical applications
  • Supply chain management
  • Cross-border payments
  • And more

These are just a few examples of their use cases and how they can help improve and safeguard our systems. To introduce the relevance of smart contracts for beginners, let’s expound on a few:

Supply Chains

Blockchain can provide better transparency and efficiency in managing global supply chains. Using blockchain through smart contracts and dApps, you can introduce ways to track items transparently.


Smart contract-driven blockchain improve the security structure by reducing theft or fraud while lessening overall costs. Supply chains can also be connected to IoT-driven sensors that work with smart contracts and dApps to make a truly futuristic management model.

Financial Services

Financial services can be simplified and made more accessible to a greater number of people by smart contracts and dApps. Finance has been traditionally prohibitive, reserving its best advantages and privileges only to a select few. Blockchain innovations can eliminate friction and catapult archaic models of credit, lending, and collateralization to the twenty-first century. 

Insurance

Insurance is a major human and business need that needs improvements in settlement speed. Blockchain can help ensure that policies have all the required documents. In addition, smart contracts and dApps can automate settlement without the need for any human validation. The entire process of execution is only based on the data at hand. This helps hasten the secure release of funds when they are needed most.

Smart Contracts and dApps

One of the most exciting applications of smart contract technology is dApps, or decentralized apps. If you are wondering about the extent of what you can do with them, dApps provide a great illustration. These new types of applications use the power of smart contracts to transform transactions online without having to rely on trusted third parties like banks or verify the identity of the person on the other side of the transaction.

The current set of dApps already absorb a lot of complex financial activities that used to be only within the purview of legacy financial institutions. Decentralized apps enable their users to conduct a wide number of financial transactions using cryptocurrencies, such as trading, savings, insurance, and loans, without the supervision of the banking industry. DeFi or decentralized finance implies that such things happen independently on voluntary peer-to-peer networks without any major bank interfering or taking a percentage of each transaction.

Some smart contract applications have become very powerful and popular, attracting tons of users and with trading volumes equivalent to millions or billions of dollars in crypto in a day. Different models exist too. For example, one can lend crypto to other users and earn using a predetermined interest rate or trade their crypto holdings for a new type of coin at the best exchange rate, and use the new coin in a variety of other transactions. This makes room for every bit of financial activity to be translated into its equivalent on DeFi. Any developer can create his dApp to contribute to this already thriving global ecosystem. So when you try to look up dApps to understand their potential.

Smart contracts and dApps

Blockchain developers adept in Ethereum smart contracts are in high demand these days. Salaries for Ethereum smart contracts skills and other blockchain development skills are at an all-time high. Opportunities for entrepreneurship in smart contracts and dApps abound, too. When the potential for creativity is this high, you know the sky’s the limit to what you can do and execute on the blockchain.

If you are a beginner, you have already taken the first step to understanding the topic “what are smart contracts?”. Ivan on Tech Academy has “smart contracts for beginners” courses that teach you to understand blockchain from scratch and understand the principles of Solidity on your way to writing Ethereum smart contracts. Check out their Ethereum 101 course to get acquainted with this new game-changing paradigm in computing.

If you are a novice developer looking to boost your skills, you might want to learn JavaScript to complement your HTML and C++ skills in web development and be on the way to mastering blockchain. Learning Ethereum Smart Contract 101 is the next great step after polishing your skills in JavaScript.

For more experienced developers who are already adept at working with blockchain and Web3, using Moralis gives you an edge to help take your career to new heights. Not only does it provide you with an enormous speed advantage (Imagine doing in minutes what used to take hours or weeks), but it eliminates the need for tedious back-end work. By letting you execute everything by typing in just a few lines of code, you can channel your energy into creating a better front-end for your dApps that will help them become more engaging for users and accelerate speed to market. 

Moralis is an ingenious way to build serverless Web3 apps that are also cross-chain compatible with Ethereum, Binance, and Polygon. For example, you can create a BSC token in 5 simple steps with Moralis! Building cross-chain adds to the complexity of Web3 infrastructure and having to sync users, events, and data among chains can entail high labor and financial costs. Imagine building on something that is natively cross-chain! Moralis is simply the best way to offload all these tedious steps and supercharge your smart contracts and dApps development from idea to market.

 

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