Do I Need to Know About Smart Contracts?

When you order a food from McDonald's, do you care about what it is made from? You may not prepare the food yourself, but you'd still like to know if it's made from quality ingredients, processed in a safe manner or contains stuff you're allergic to. Knowing this informs your decision on where to eat, as well as the brands to trust. I like to think of smart contracts as the “ingredients” of many digital products built on blockchain. Even if you're not writing the code, having a basic understanding of what smart contracts are and how they work is very important. What are Smart Contracts? Blockchains keep records of transactions so that anyone can verify these transactions. The Bitcoin blockchain was created to record and verify the transactions of bitcoins. Now, if blockchains have the ability to record transactions in a way that they can't be altered then maybe blockchains shouldn't be limited to keeping records of digital assets sent and received. Ethereum was created to make a blockchain keep records of more complex transactions like lending and borrowing. Ethereum does this with smart contracts. Smart contracts are basically terms and conditions or instructions that know when to apply themselves. They are written in code and don't require any one to execute them. A simple smart contract activity that every user interact with daily without even thinking about it is swapping one asset to another. You open your crypto wallet, and like any other user friendly app, you click the “Swap” button to convert some USDC for some ETH. What happens when you click the “Swap” button When you click that swap button, an instruction has been given for the wallet to always check: that you have enough gas fee that there's enough liquidity to complete the transaction at that price without issues and to only exchange the assets once these conditions are met. The rules can vary depending on the service you are using or what you're trying to achieve but this is pretty much the gist. Without smart contracts, you'd have to use a bank or a broker and incur exchange fees that you might not be aware of (you can't verify). Why is it important to be aware of smart contracts and what they do? Just as you trust that a restaurant follows food safety standards, you need to trust that the smart contracts governing your transactions are secure and reliable. When you're aware of what goes into your food, you can make healthier choices or avoid allergens. Similarly, a basic understanding of smart contracts enables you to make informed decisions about which protocols to use and which to be wary about. This is why people with size keep a good chunk of their money on the Ethereum network.

Apr 14, 2025 - 21:26

Do I Need to Know About Smart Contracts?

When you order a food from McDonald's, do you care about what it is made from?

You may not prepare the food yourself, but you'd still like to know if it's made from quality ingredients, processed in a safe manner or contains stuff you're allergic to.

Knowing this informs your decision on where to eat, as well as the brands to trust.

I like to think of smart contracts as the “ingredients” of many digital products built on blockchain. Even if you're not writing the code, having a basic understanding of what smart contracts are and how they work is very important.

What are Smart Contracts?

Blockchains keep records of transactions so that anyone can verify these transactions. The Bitcoin blockchain was created to record and verify the transactions of bitcoins.

Now, if blockchains have the ability to record transactions in a way that they can't be altered then maybe blockchains shouldn't be limited to keeping records of digital assets sent and received.

Ethereum was created to make a blockchain keep records of more complex transactions like lending and borrowing. Ethereum does this with smart contracts.

Smart contracts are basically terms and conditions or instructions that know when to apply themselves. They are written in code and don't require any one to execute them.

A simple smart contract activity that every user interact with daily without even thinking about it is swapping one asset to another.

You open your crypto wallet, and like any other user friendly app, you click the “Swap” button to convert some USDC for some ETH.

What happens when you click the “Swap” button

When you click that swap button, an instruction has been given for the wallet to always check:

that you have enough gas fee
that there's enough liquidity to complete the transaction at that price without issues
and to only exchange the assets once these conditions are met.

The rules can vary depending on the service you are using or what you're trying to achieve but this is pretty much the gist.

Without smart contracts, you'd have to use a bank or a broker and incur exchange fees that you might not be aware of (you can't verify).

Why is it important to be aware of smart contracts and what they do?

Just as you trust that a restaurant follows food safety standards, you need to trust that the smart contracts governing your transactions are secure and reliable. When you're aware of what goes into your food, you can make healthier choices or avoid allergens. Similarly, a basic understanding of smart contracts enables you to make informed decisions about which protocols to use and which to be wary about.

This is why people with size keep a good chunk of their money on the Ethereum network.