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Introduction to Smart Contracts and DeFi

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Understanding Cybersecurity Management in Decentralized Finance

Part of the book series: Financial Innovation and Technology ((FIT))

Abstract

Smart contracts are a modern version of the traditional paper-based legal agreements. It is an evolving concept which is reshaping the way legal contracts used to bind the involved parties to do business. Smart contracts are computer programmed by a software developer who codifies the terms and conditions of the paper-based legal agreement. Thus, smart contracts are used to automate the execution of legal agreements so that all parties immediately come to know the outcome. There is no involvement of an intermediate party in execution of the contract.

Smart contracts are a critical component of several applications and platforms built using blockchain or distributed ledger technology. However, there are some challenges with the wide adoption of smart contracts. For example, smart contracts are not easy to modify owing to the use of blockchain technology to store them. This brings them on back foot as there is no privilege to change or add any term into the already coded smart contract.

This chapter outlines the fundamentals of smart contracts and decentralized finance. It brings forward the technical operational process of smart contracts and how they are programmed to replace the traditional paper-based legal agreements. The chapter also includes pictorial representation to demonstrate the pragmatic approach of creating the first smart contract. Decentralized finance is the key concept highlighted toward the end of the chapter. It introduces decentralized finance and presents some popular applications which utilize decentralized finance. Any technology has its pros and cons and so does decentralized finance. The famous oracle problem finds its place before the chapter finishes.

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Author information

Authors and Affiliations

  1. Saint John, NB, Canada

    Gurdip Kaur

  2. School of Information Technology, York University, Toronto, ON, Canada

    Arash Habibi Lashkari

  3. Application Security, Forward Security Inc, Vancouver, BC, Canada

    Iman Sharafaldin

  4. School of Computer Engineering, Universidad Politécnica de Madrid, Madrid, Spain

    Ziba Habibi Lashkari

Authors
  1. Gurdip Kaur
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  2. Arash Habibi Lashkari
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  3. Iman Sharafaldin
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  4. Ziba Habibi Lashkari
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Kaur, G., Habibi Lashkari, A., Sharafaldin, I., Habibi Lashkari, Z. (2023). Introduction to Smart Contracts and DeFi. In: Understanding Cybersecurity Management in Decentralized Finance. Financial Innovation and Technology. Springer, Cham. https://doi.org/10.1007/978-3-031-23340-1_2

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