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The Role of smart contracts in cryptocurrency


The digital landscape of finance went through a radical transformation, largely driven by the advent of smart contracts. As these self-executing agreements take centre stage, they are reshaping the very essence of how transactions in the cryptocurrency world are viewed and handled.

With an ability to enforce, verify, and facilitate the performance of a contract, smart contracts are poised to revolutionise our understanding of trust and automation in the digital realm.

In this article, I will explore the intricacies of smart contracts and their pivotal role in the cryptocurrency ecosystem.

Let’s get started.


Understanding smart contracts in cryptocurrencies

Smart contracts represent a new frontier in the world of contract law and digital transactions. At their core, they're self-executing contracts with the terms of the agreement directly written into code lines. Here's a deeper look:

Origins and definition

Smart contracts were first conceptualised in the early 1990s by computer scientist Nick Szabo. He described it as a computerised transaction protocol that executes the terms of a contract. In simple terms, it's a set of coded instructions that automatically execute actions when certain conditions are met.

Decentralisation and trust

Smart contracts operate on decentralised platforms, mainly blockchain. This decentralisation ensures that no single party has control over the contract, making it tamper-proof. Transactions are transparent, verifiable, and irreversible, fostering a heightened level of trust among parties.


Among the many benefits of smart contracts are cost-efficiency (eliminating intermediaries), speed (automatic execution), accuracy (coded terms minimise human errors), and enhanced security (cryptography-backed transactions).


Despite their potential, smart contracts have limitations. Their immutable nature means they can't be easily altered once deployed. Additionally, they're only as good as their coding, meaning faulty code can lead to unintended consequences.


List of cryptocurrencies supporting smart contracts?


The Role of smart contracts in cryptocurrency


As the technology matures, the capabilities and reach of smart contracts are expected to expand exponentially. Here’s a list of cryptocurrencies that utilise smart contracts in their transactions.

  1. Ethereum (ETH): Often regarded as the pioneer in the smart contract arena, Ethereum's platform is specifically designed for creating and executing smart contracts.
  2. Binance Smart Chain (BSC): Binance's blockchain supports smart contracts and has become notable for its lower transaction fees compared to Ethereum.
  3. Cardano (ADA): With its research-driven approach, Cardano has developed a platform for creating secure and scalable smart contracts.
  4. EOS: EOSIO is a platform designed for decentralised applications and smart contracts, claiming faster transaction speeds and better scalability than some competitors.
  5. Tezos (XTZ): Tezos supports smart contracts and offers a platform that can evolve by upgrading itself without having to fork the network.
  6. Polkadot (DOT): While primarily known for connecting multiple blockchains, Polkadot also supports the development and execution of smart contracts.
  7. Tron (TRX): Originally on Ethereum's network, Tron has since moved to its blockchain, which supports a large number of decentralised applications and smart contracts.
  8. NEO: Often referred to as "Ethereum's killer" in its early days, NEO allows developers to write smart contracts in various programming languages.
  9. Avalanche (AVAX): A newer player, Avalanche provides highly scalable blockchain networks and supports custom, complex, and scalable smart contracts.
  10. Algorand (ALGO): Focusing on speed and efficiency, Algorand supports the development of smart contracts and decentralised applications on its platform.


How does a smart contract work?

Basic functionality

Smart contracts are akin to traditional contracts, but they are designed to operate digitally, autonomously, and securely. The essence of a smart contract is its code – a series of “if/when…then…” statements. For instance, "if/when Party A sends a certain amount of cryptocurrency, then release a digital certificate to Party A."

Execution and verification

Once the contract's stipulated conditions are met, a network of computers (or nodes) on the blockchain validates the transaction. This decentralised verification ensures that the process is transparent, tamper-proof, and free from interference or bias. Upon successful validation, the actions dictated by the contract – like transferring funds or registering assets – are executed automatically.

Immutable and transparent transaction

After execution, the details of the transaction are added to the blockchain. Given the nature of blockchain technology, this record becomes immutable, meaning it cannot be altered or deleted. This provides a high level of security and trust among the parties involved. Depending on the blockchain's design, this record can be private (where only specific parties can access the details) or public.

Crafting the contract

Designing a smart contract requires careful deliberation. Parties involved need to:

  1. Define transactions: Determine how transactions and related data are represented on the blockchain. This ensures clarity in what actions the contract will undertake.
  2. Set rules: Agree upon the governing rules, or the “if/when...then…” conditions. This forms the contract's core operational logic.
  3. Plan for exceptions: Since real-world scenarios can be complex, it's crucial to explore all potential exceptions or unexpected events and incorporate provisions for them.
  4. Dispute resolution: Despite the autonomous nature of smart contracts, there may be instances of disagreements. A framework should be established upfront to handle potential disputes, which might involve third-party arbitration or predefined corrective actions.

Contract development

With the terms set, the contract is ready to be coded. Developers, equipped with expertise in blockchain and relevant programming languages, translate the agreed terms into executable code. However, as blockchain becomes more prevalent in business applications, there's a growing array of tools and platforms that simplify this process. 

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Final thoughts

Smart contracts signify more than just a technological marvel; they represent a fundamental shift in how we approach trust and automation in the digital realm.

As these contracts become more integrated into various sectors, understanding their intricacies will be paramount.

With platforms like, not only can you stay abreast of the latest trends in cryptocurrency and smart contracts, but you can also delve into the world of crypto CFD trading, positioning yourself at the forefront of this financial revolution.

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Read up on this interesting article as well: Crypto Trading: The Ultimate Beginner’s guide


“When considering Cryptocurrencies for trading and price predictions, remember that trading CFDs involves a significant degree of risk and could result in capital loss. Past performance is not indicative of any future results. This information is provided for informative purposes only and should not be construed to be investment advice.”

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