Understanding Smart Contracts and Cryptocurrency

In this video, we’ll explore key concepts around smart contracts, decentralized applications (dApps), and cryptocurrencies. We’ll cover how smart contracts work, the fundamentals of dApps, the role of blockchain in cryptocurrencies, and how cryptocurrencies gain value.

What Are Smart Contracts?

A smart contract is a self-executing program where the terms of an agreement between parties (typically a buyer and a seller) are directly written into code. These contracts are stored and executed on blockchain networks.

Unlike traditional contracts, smart contracts automate execution, reducing the need for intermediaries and minimizing manual intervention. They are designed to:

• Facilitate agreements
• Automatically enforce rules
• Verify conditions before execution

For example, multiple parties can define a cooperative opportunity with specific outcomes. Once predefined conditions are met, the smart contract automatically executes the terms. These contracts are essentially computer programs written by developers and secured by blockchain encryption.

Once a smart contract is deployed, all nodes on the blockchain network update their ledgers to reflect the new data—just like adding a new block. But instead of financial transactions, this block contains logic defined by the smart contract.

What Are Decentralized Applications (dApps)?

Decentralized applications (dApps) are software programs that run on decentralized networks like blockchains. They are:

• Transparent: Open-source backend code that anyone can inspect.
• Resistant to tampering: Not controlled by a single entity.
• Censorship-proof: Immutable and always accessible.

A typical dApp consists of:

1. A front-end interface for user interaction.
2. A backend that operates on a blockchain, containing the business logic (often powered by smart contracts).

You’ll learn to build your own dApp by the end of this course, including how to connect the front end and back end.

Examples of dApp use cases:

• Finance: Exchanges, lending platforms.
• Identity: Verification and reputation systems.
• Supply Chain: Tracking goods and materials.
• Voting: Transparent digital governance.

Although some of these applications are still evolving, their transparent and tamper-resistant nature is likely to make them more common in the future.

What Is Cryptocurrency?

A cryptocurrency is a digital or virtual currency that uses cryptography to secure transactions. It is decentralized, meaning it is not governed by any central authority like a government or central bank.

Cryptocurrencies are based on distributed ledger technologies, such as blockchain, and rely on mechanisms like mining or staking for security and validation.

They can be used to:

• Make online payments or purchases.
• Serve as a medium of exchange.
• Act as a store of value, similar to traditional currencies.

Role of Blockchain in Cryptocurrencies

Cryptocurrencies fall into two categories when viewed through the lens of blockchain technology: coins and tokens.

• A coin operates on its own native blockchain. Examples include Bitcoin, Ethereum, and Litecoin.
• A token is built on an existing blockchain (e.g., Ethereum or BNB Smart Chain). Tokens are often used to represent assets, grant access to specific services, or function within a specific ecosystem.

Key difference:

• Coins = standalone cryptocurrencies with independent blockchains.
• Tokens = digital assets that exist on top of existing blockchain infrastructures.

How Do Cryptocurrencies Gain Value?

The value of a cryptocurrency is primarily determined by supply and demand. When demand exceeds supply, the price rises. When demand drops, so does the price.

Factors influencing value include:

• Use cases and utility
• Perceived benefits
• Market sentiment
• Total circulating supply

Conclusion

We’ve covered the foundations of smart contracts, decentralized applications, and cryptocurrencies. These technologies form the backbone of modern blockchain ecosystems, and understanding them is essential for building or participating in decentralized systems.