We briefly went over smart contracts, but it is important we touch on them further, and the things that can be done with them.
Normal contracts require trust. Let’s say you make a bet with your friend about the result of a game of football. You bet that your team is going to win, and your friend bets their team will win. The Bet is $10. Now, let’s say your team wins. But your friend doesn’t pay up.
The beauty of smart contracts is that they turn contracts into computer code that execute automatically when contract terms are met. There’s no room to renege or try and play the system and because of that, there is no trust required.
Smart contracts are the backbone of the decentralised finance (DeFi) industry. We will discuss this in much more detail, but for now - we can give this example: A smart contract allows you to post collateral, and automatically receive a loan. No need to talk to bankers, accountants or loan officers. You post up collateral, some code runs in the background and checks you’ve posted enough, and voila you have access to the funds you need.