What Are Smart Contracts? Explained

No technical jargon or buzzwords, just a simple explanation

Smart contracts are a massive part of crypto, but they can be complicated and hard to understand. I decided to write a simple and easy to explain description of how they work.

So how do they work?

Imagine a vending machine. Vending machines are pretty much the lowest form of smart contract possible, so they're a great way to explain the more complicated ones. Let's say this vending machine only sells one type of soda: Cryptorange. Anyone with money can go to the machine and exchange their more common currency for Cryptorange. This way of exchanging it is what gives the soda its value: Without it, the soda is just liquid in a metal can. Of course, we have to stray a bit from the vending machine analogy when it comes to exchanging your Cryptorange back into normal currency, but the rest makes sense.

What about NFTs?

Well, conveniently enough, the vending machine analogy still stands. Imagine a new vending machine: this one sells multiple different types of soda: Cryptorange, Bitcola and Dr. Ether. While multiple cans of each soda can be in the machine, each soda has a unique product code. This makes no two cans the same, and they can now be identified.

How far can this go?

This analogy is pretty versatile, since it can expand to fit tons of other concepts: an exchange like Uniswap would be a food court with multiple machines! The possibilities of smart contracts are pretty much endless, and tons of newer coins have even better smart contract systems that Ethereum. I recommend checking out my blog post on smart contracts for some further reading!

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