What are smart contracts?
Smart contracts are programs stored on a blockchain that run when predetermined conditions are met. Written directly into lines of code that control the execution, transactions are trackable and irreversible and can be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism.
What types are businesses using?
There are a variety of popular smart contracts being used by businesses, including:
- ERC20 Token Standard: This standard defines how new tokens can be created on the Ethereum blockchain. It outlines a set of rules that all these tokens must follow, which makes it easier for developers and investors to understand and use them. A few examples of popular protocols which helped popularize its use are Bancor, Power Ledger and Civic. Now almost all projects operating in Web3 are compatible with this ERC20 token standard, and/or can speak a very similar common language.
- Ethereum Name Service (ENS): ENS is a distributed, open and extensible naming system based on the Ethereum blockchain that can be used to resolve everything from human-readable names like ‘myname.eth’ to machine-readable identifiers like Ethereum addresses.This is the equivalent of a centralized domain registrar like GoDaddy or NameCheap, but ENS, is entirely decentralized.
- Multisig Wallets: A multisig wallet is a type of crypto wallet that needs more than a single private key to authorize transactions. This can be useful for businesses that want to have greater control over their funds and prevent any single person from being able to access and spend them.
- Decentralized Exchanges (DEX): A DEX is a type of cryptocurrency exchange that does not rely on a central authority or third-party service to hold the customers’ funds. Instead, trading is conducted directly between users via smart contracts on the blockchain. This offers greater security and privacy, as well as eliminates counterparty risk.
- Atomic Swaps: Atomic swaps are a type of smart contract that allows users to trade cryptocurrencies directly with each other without the need for a centralized exchange. This process is completed by “locking” both parties’ funds in one smart contract so that neither can access them until the trade is finalized.
- Initial Coin Offerings (ICOs): An ICO is a fundraising method in which new projects can sell underlying tokens for Bitcoin or other cryptocurrencies. This is often done to finance the development of the project and grow its community.
- Decentralized Autonomous Organizations (DAOs): A DAO is a type of decentralized organization that runs on a set of smart contracts deployed on the Ethereum blockchain. It has no centralized management or ownership and instead relies on its code to automate decision-making and governance.
- Token Curated Registries (TCRs): A TCR is a type of decentralized database that is used to store a list of items that have been curated by the community. The most well-known example is the Ethereum Token List, which is used to track all the different ERC20 tokens that have been created.
- Non-Fungible Tokens (NFTs): An NFT is a type of digital asset that represents a unique item that cannot be replaced by another identical item. The best-known example of an NFT is CryptoKitties, which are collectible digital cats that each have their own unique appearance and characteristics.