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What Are Smart Contracts?

· 2 min read

As mentioned in the previous lesson, smart contracts are sets of functions and conditions executed in a specific order.
They are written by developers and are used to create decentralized applications (dApps) on platforms like Ethereum or BNB Chain.

Example 1: Token Swap on a DEX​

Suppose I go to Uniswap and want to swap ETH for another token:

  1. I send a transaction to the smart contract.
  2. The smart contract reads the details and selects the best exchange rate.
  3. It takes my ETH and sends the requested token back to my wallet.

💡 But what if the ETH price drops during the swap?

  • If the price moves within the allowed range, the swap goes through.
  • If the price deviates too much, the trade is canceled and my ETH is returned.

👉 This shows the power of smart contracts: they enforce predefined rules automatically.

Example 2: Buying an NFT​

Imagine I want to buy an NFT on a decentralized marketplace:

  1. I send a transaction to purchase the NFT.
  2. The smart contract receives my funds.
  3. It transfers the NFT to my wallet.
  4. It sends payment to the seller.

✅ The deal is completed automatically — no third party needed.

Why Smart Contracts Matter​

Transactions happen without relying on intermediaries.
This is the core advantage of smart contracts and cryptocurrency.

Key Benefits​

  1. Transparent – anyone can review the contract code.
  2. Autonomous – no central governing authority required.
  3. Immutable – once deployed on blockchain, the code cannot be altered.

Risks to Consider​

⚠️ Smart contracts are only as safe as the code inside them.

  • Anyone can deploy a contract.
  • Malicious actors can create harmful functions.
  • Users must be cautious and verify contracts before use.

I’ll cover the risks and security aspects in more detail in a future lesson.

Disclaimer: These materials are created for educational purposes only and do not constitute financial advice.