Smart Contract
In short: Smart contracts are protocols, written as computer programs, that execute automatically on the blockchain when predefined conditions are met.
Smart contracts are protocols, written as computer programs, that execute automatically on the blockchain when predefined conditions are met. Once deployed, they run exactly as coded, and the network’s nodes independently verify every result.
Why it matters
Smart contracts replace a trusted middleman with code that anyone can inspect, and they power ERC-20 tokens, decentralized exchanges, lending protocols, NFTs and DAOs. Because the code is usually public and difficult to change after launch, a bug can be exploited and lost funds are often impossible to recover, so reputable projects publish their code and independent audits. A smart contract also cannot see the outside world on its own; it relies on oracles for data such as prices.
Example
Two people agree on the sale of a digital item. Instead of trusting each other, the seller deposits the item and the buyer deposits the payment into an escrow smart contract. When both deposits are present, the contract swaps them in a single transaction. If the seller never deposits before a set deadline, the buyer can withdraw the payment again. Neither side can take the other’s asset without delivering its own, because the rules are enforced by code.