5.3 Smart contracts and decentralized applications (DApps)

Smart contracts revolutionize agreements by automating execution on blockchain. They eliminate intermediaries, reduce costs, and increase efficiency. Key features include self-execution, immutability, and transparency, with applications in insurance payouts and supply chain tracking.

Decentralized applications (DApps) operate on peer-to-peer networks without central authority. They offer open-source code, tokenization, enhanced security, and global accessibility. DApps are transforming finance, social media, and other industries by creating interconnected ecosystems resistant to censorship.

Smart Contracts and Blockchain Fundamentals

Smart contracts for automated agreements

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  Blockchain in Smart Cities: Exploring Possibilities in Terms of Opportunities and Challenges View original

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• Smart contracts self-execute programs stored on blockchain automatically enforce agreement terms trigger actions when conditions met
• Automation eliminates intermediaries reduces transaction costs increases contract execution efficiency
• Enforcement capabilities make contracts immutable once deployed transparent and verifiable execute without human intervention
• Key components include code defining contract logic digital signatures of parties blockchain address for deployment
• Examples: Automated insurance payouts, supply chain tracking (IBM Food Trust)

Key features of decentralized applications

• Decentralized nature operates on peer-to-peer networks without central authority or single point of failure
• Open-source code ensures transparency and auditability enables community-driven development and improvements
• Tokenization uses native cryptocurrencies or tokens for incentives facilitates value transfer within application
• Benefits enhance security through cryptography increase user privacy and data ownership resist censorship provide global accessibility
• Interoperability allows interaction with other DApps and protocols creates complex interconnected ecosystems
• Examples: Decentralized finance (DeFi) platforms, decentralized social media networks (Mastodon)

Ethereum and Industry Applications

Ethereum and Solidity for blockchain development

• Ethereum platform second-largest blockchain by market cap designed for smart contract deployment and execution uses Ether (ETH) as native cryptocurrency
• Ethereum Virtual Machine (EVM) acts as decentralized computer executing smart contracts ensures consistent execution across network nodes
• Solidity programming language object-oriented high-level designed for smart contracts statically typed supports inheritance syntax similar to JavaScript
• Key Solidity concepts include contract structure state variables functions and modifiers events and error handling gas optimization techniques
• Development tools: Remix IDE for writing and testing contracts Truffle framework for DApp development Web3.js library for interacting with Ethereum nodes
• Examples: CryptoKitties, Uniswap

Industry impact of smart contracts

• Finance industry: Automated lending and borrowing protocols decentralized exchanges (DEXs) tokenization of real-world assets streamlined insurance claims processing
• Supply chain management: Transparent product tracking and verification automated payments upon delivery confirmation reduction in counterfeit goods improved inventory management
• Gaming industry transformation: True ownership of in-game assets interoperable items across games play-to-earn models decentralized autonomous organizations (DAOs) for game governance
• Challenges: Scalability limitations regulatory uncertainty user experience improvements needed energy consumption concerns
• Future potential: Integration with Internet of Things (IoT) devices identity management and verification systems decentralized governance models for organizations cross-chain interoperability and scaling solutions
• Examples: Chainlink (oracle services), Aave (lending protocol)