Introduction to Smart Contracts

Smart contracts are foundational to blockchain technology, enabling automated, secure, and transparent transactions without the need for intermediaries. This lesson covers what smart contracts are, how they function, and their importance in decentralized applications.

1. What Are Smart Contracts?

A smart contract is a self-executing agreement with the terms written directly in code. Deployed on networks like Ethereum or Solana, it automatically performs actions when predefined conditions are met—without a central authority.

Example: A parametric insurance contract can release a payout if a hurricane is detected by a trusted data source (an oracle), eliminating the need for a manual claims process.

2. Key Features of Smart Contracts

Smart contracts offer several advantages over traditional agreements:

• Trustless: Execution is governed by code rather than a third party.
• Transparency: Terms and behavior are publicly verifiable on-chain.
• Efficiency: Automation reduces time and operational costs.
• Security: Tamper-resistance from the underlying blockchain.

3. How Do Smart Contracts Work?

They follow “if/then” logic: if condition A is met, then perform action B (transfer funds, update state, emit an event). Once deployed, code is typically immutable, lending reliability—though upgrades require careful design (e.g., proxies).

For real-world inputs (prices, weather, sports results), contracts rely on oracles, since chains can’t fetch off-chain data natively.

4. Common Platforms for Smart Contracts

• Ethereum: The pioneer for generalized smart contracts (Solidity), powering much of DeFi and NFTs.
• BSC: EVM-compatible with lower fees and high throughput for Solidity apps.
• Solana: High throughput and low fees, popular for real-time apps and DeFi; contracts are programs written in Rust, C, or C++.

5. Limitations and Risks

• Code Bugs: Vulnerabilities can be exploited; rigorous audits and formal verification help.
• Immutability: Hard to change post-deploy, requiring careful upgrade patterns.
• Oracle Risk: Bad data in → bad outcomes out.

What's Next

Next up, we’ll explore real applications in Smart Contract Use Cases—from DeFi and payments to supply chain and tokenized assets.