What is a Smart Contract?

The Ethereum blockchain, has a key difference compared with Bitcoin. Smart Contracts. Smart contracts are what make all the different Decentralized - Finance (DeFi) protocols on Ethereum possible. Smart contracts are pieces of code that exist on blockchain. They are basic programs that complete some on-chain transaction autonomously. A Smart Contract is always checking to see if some predefined conditions in the code are met, before it executes some predetermined action. Think of a smart contract like a vending machine. A vending machine runs autonomously. It is always waiting for a customer to pay. Once the payment has been made, the vending machine will dispense the item. The rules are known before the individual engages with the smart contract and there is no store-person or human administrator overseeing the vending machines day to day operations. It runs autonomously (except when it needs restocking). This simple concept of if [ACTION] = TRUE > Execute some on-chain transaction is the building block for Decentralized finance applications on Ethereum. They allow for Stablecoins and Tokens, Decentralized exchanges, DeFi Lending & Borrowing, Perpetual Futures, predictions markets and many more. Want to learn more?