Disclaimer: Blog co-authored by combining Team AI and Team human!
Why Smart Contracts?
Ever thought about buying or selling a house without paying the middle-people?
In one of the many innovative use cases, a smart contract can be used to automate the sale of a house. The contract could be programmed to release the funds to the seller once the buyer has transferred the purchase price and the title has been transferred to the buyer.
Smart contracts have the potential to revolutionize the way we interact with the world around us. They can help to reduce costs, improve efficiency, and increase transparency. Smart contracts can also be used to create new and innovative products and services.
What Are Smart Contracts?
Smart contracts are self-executing contracts with the terms of the agreement directly written into code. They are stored on a blockchain, ensure transparency and immutability. Smart contracts eliminate the need for intermediaries, such as lawyers or notaries, as they automatically execute actions when predetermined conditions are met.
Smart Contracts are Building Blocks of Web3
Smart contracts are one of the key building blocks of Web3, the next generation of the internet built on blockchain technology. Web3 is a decentralized web where users have more control over their data and privacy. Smart contracts are used to power a wide range of Web3 applications, including decentralized finance (DeFi), non-fungible tokens (NFTs), and the metaverse.
How Smart Contracts Work?
Smart contracts are written in programming languages such as Solidity and Vyper. Once deployed on a blockchain, smart contracts cannot be changed or deleted. When a condition in a smart contract is met, the contract is automatically executed.
Different components of a smart contract and how they interact with each other:
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The contract code: This is the code that defines the terms of the contract.
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The state: This is the data that is stored on the blockchain and that is used to execute the contract.
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The functions: These are the actions that the contract can perform.
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The events: These are the notifications that the contract emits when it performs an action.
Current Ecosystem
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Number of active smart contracts on Ethereum has grown from 1 Million in 2019 to over 10 Million in 2023.
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Total value locked in DeFi protocols has grown from $1 Billion in 2019 to over $37 Billion in 2023 (as-of Oct 20, 2023)
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NFT market grew from $100 million in 2019 to over $40 Billion in 2023
- Sources: DappRadar DefiLlama NonFungible
Top Use Cases
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Decentralized Finance (DeFi): Smart contracts are the backbone of DeFi, allowing for decentralized exchanges, lending platforms, stablecoins, and yield farming. Examples include Aave, Compound, and MakerDAO.
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Non-fungible Tokens (NFTs): These unique digital tokens represent ownership of a specific item or piece of content. NFTs have become popular for digital art, collectibles, and even real estate.
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Decentralized Autonomous Organizations (DAOs): DAOs are organizations run through rules encoded as smart contracts. They allow for decentralized governance and decision-making.
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Identity Verification: Systems like uPort or Civic use smart contracts to provide self-sovereign identities, allowing users to control their personal data and how it's shared.
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Supply Chain and Provenance: Brands like De Beers use smart contracts to trace the origin of diamonds, ensuring they are ethically sourced. Similar concepts are applied in food safety, luxury goods, and more.
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Real Estate and Asset Tokenization: Property sales, rentals, and fractional ownership can be automated and secured using smart contracts.
Top-20 Smart Contracts
Here is a list of the top 20 smart contracts by total transaction volume in USD and total value locked (TVL) in USD in 2023, broken down by blockchain.
Please note that this list is based on publicly available data and may not be completely accurate. Additionally, some smart contracts, such as Axie Infinity and OpenSea, do not have a TVL, as they are not DeFi protocols. We included both Ethereum and Binance smart chain.
Conclusion
As the blockchain ecosystem evolves and matures, the applications of smart contracts are expected to expand dramatically, touching almost every industry. However, it's essential to be aware that the widespread adoption of smart contracts will also depend on resolving existing scalability, interoperability, and regulatory challenges.
