What Is a Smart Contract and How Does It Work?
What is a smart contract?
How do smart contracts work?
Smart contracts use cases
Pros and cons
- Immutability: Once it is on the blockchain, the smart contract can’t be changed anymore.
- Safety: Through cryptography, the blockchain is kept secure from hacking.
- Permissionless: Anyone can write a smart contract and deploy it to the network.
- Speed: Once the conditions are met, the contract is executed immediately.
- Savings: By removing the need for third parties, the cost of transactions is reduced.
- Trustless: There is no need to trust a third party like a bank. It works exactly as coded and is saved on the blockchain.
- Immutability: If there are bugs in the contract, the vulnerability can be exploited. In the DAO hack, $60 million worth of Ether was stolen through an exploit.
- Trust: If you can’t read and audit the code yourself, you’ll often find yourself trusting it just because others do, or because you trust whoever deployed it on the blockchain.
- Regulation: Uncertainty on how the government will regulate smart contracts.
- Change: Since smart contracts are immutable, any change in the contract means a new contract needs to be deployed.
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